The 6th

EFG Hermes London MENA & Frontier Conference

INSIGHTS INTO THE NEW REALITY

Emirates Stadium, London, UK 5 - 8 September, 2016 The 6th

EFG Hermes London MENA & Frontier Conference

In addition to our customary focus on the Middle East and North Africa, this year's EFG Hermes London Conference includes for the first time listed companies in frontier markets outside of MENA.

A few short months ago, Western markets were in favor as developing economies were roiled by low oil and commodity prices, rising global volatility, China's economic slowdown, the specter of an emerging market debt crisis, and the prospect of a hike in U.S. interest rates. Today, Argentina has returned to the global investment map, Mideast markets are taking decisive steps to transition to a post-oil future, and net outflows from emerging market funds in late 2015 and early 2016 have reversed as investors faced with the prospect of negative interest rates from Europe to Japan are seeking equity and fixed-income opportunities in emerging and select frontier markets.

Exploring Opportunities in MENA & Beyond Reform remains a critical driver of regional market performance at a time when oil prices and capital flows into emerging markets remain uncertain. Growth is slowing in nearly all economies thanks to the commodity price shock, but reactions differ between markets. Financial sector changes – including the potential listing of Saudi Aramco – are the cornerstones of Saudi Arabia’s transformative Vision 2030, but markets will also be looking for changes to FOLs and market infrastructure in the UAE, Qatar and Kuwait. Broader economic reforms are required outside the GCC, including increasing tax collection in Pakistan and Egypt. Securing financing for fiscal and current account deficits remains critical in the current environment. The IMF may play an increasing role in mainstream EM and FM countries, but GCC markets will focus on attracting private sector financing.

Emirates Stadium, London, UK 5 - 8 September, 2016 EGYPT

AMER GROUP 4 INTEGRATED DIAGNOSTICS HOLDINGS | IDH 36 Year-end June 2014a 2015a 2016e 2017f 2018f ARABIAN CEMENT COMPANY | EGYPT 6 JUHAYNA 38 Nominal GDP (USD bn) 301.4 330.3 345.0 310.1 330.1 ARAFA HOLDING 8 LECICO 40 Real GDP growth (%) 2.2 4.2 3.7 3.8 4.3 CAIRO POULTRY 10 MADINET NASR HOUSING & DEVELOPMENT 42 CPI inflation, annual average (%) 10.1 11.0 10.2 14.3 12.0 CLEOPATRA HOSPITAL COMPANY | CHC 12 ORASCOM CONSTRUCTION LIMITED 44 Current account balance (USD bn) (2.7) (12.1) (18.2) (14.5) (17.5) COMMERCIAL INTERNATIONAL BANK | CIB 14 ORASCOM DEVELOPMENT HOLDING 46 Current account balance (% of GDP) (0.9) (3.7) (5.3) (4.7) (5.3) DOMTY 16 ORIENTAL WEAVERS 48 Fiscal balance (USD bn) (36.6) (38.0) (42.1) (33.2) (32.8) EDITA 18 PALM HILLS DEVELOPMENTS 50 Fiscal balance (% of GDP) (12.2) (11.5) (12.2) (10.7) (9.9) EFG HERMES 20 PORTO GROUP 52 Population (mn) 86.8 88.8 90.8 92.8 94.8 EGYPTIAN RESORTS COMPANY 22 QALAA HOLDINGS 54 Source: Central Bank of Egypt, Ministry of Finance, and EFG Hermes estimates EK HOLDING 24 SODIC 56 ELSEWEDY ELECTRIC 26 TELECOM EGYPT 58 EZZ STEEL 28 TMG HOLDING 60 GB AUTO 30 GLOBAL TELECOM HOLDING 32 HOUSING AND DEVELOPMENT BANK 34 Share Price Performance Relative to HFI (VWAP) (Rebased) AMER GROUP www.amer-group.com 0.8 Amer (EGP) HFI (VWAP) EGYPT 0.7

0.6 Real Estate & Hospitality BUSINESS DESCIPTION Amer was originally established as a real estate investor, developer, and a hospitality provider that caters for the middle 0.5 and upper-middle income segment in Egypt. The company’s product offering was concentrated in the secondary homes segment and was later extended to the primary homes, with projects in New Cairo and Sixth of October 0.4 QUESTIONS City. Amer also has franchise licences for a number of restaurant names, owning and operating 58 outlets in Egypt. This, together with the company’s hospitality and retail arm bring in c.20% of the company’s top line, on average. In 0.3 October 2015, the group has successfully concluded the spin-off exercise of the majority of its real estate development operations to a newly-established entity, named Porto Group, to concentrate on the real estate investment activity, 1. How is management addressing the rising concerns of affordability, which is mostly felt within the segment Amer is addressing? and the ownership and management of its retail, restaurants, and hotels portfolio. The new entity would allow ...... for higher realisation of value, in management’s view, as it would provide more management flexibility and focus. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 That said, Amer has taken the responsibility to deliver an off-plan backlog worth EGP3.1bn (in June 2016), sell the 2. Should we expect to see cooperation with other real estate companies, other than Porto Group in the future? existing inventory of 1,036 units and conclude the projects that are currently under co-development with Porto Group. Following the delivery of these, Amer will be more dedicated to land sourcing and investment, and to the ...... (EGP) management of the restaurants, malls and hotels portfolio. Valuation Statistics 2014a 2015a 1H16a (TTM) EPS 0.03 0.03 0.04 3. Is the company looking to grow its land bank? What is the strategy here? INVESTMENT THESIS DPS 0.00 0.00 0.01 ...... Under the new setting, post the spin-off of the real estate development related activities to Porto Group, Amer Group BVPS 0.31 0.34 0.30 will provide exposure to a recurring income stream of cash flow, with its focus on the management of restaurants, malls and hotels. We note that these segments have been either loss-making or barely breaking-even over the past 4. What plans does management have to turnaround the company’s hotel, malls and restaurants operations? five years. The company has announced the appointment of two new heads of its hospitality and malls segments in P/E (x) 8.86 11.24 8.13 ...... 4Q15, in order to lead the restructuring process, which we view positively. The group owns and operates c.80,000 Dividend Yield 0.0% 0.0% 3.3% sqm of GLA in the retail space under the Malls division, with additional 222,000 sqm under construction. Under the P/BV (x) 1.0 0.9 1.0 hotels division, Amer owns and manages a total of 860 hotel rooms, which are planned to double in number to 1,229 hotel rooms, before end of 2019. This is in addition to 7,415 seats within its restaurant division. Amer is also entitled FCF Yield 20.0% -14.3% 21.6% to 1% of Porto Group’s contracted sales, as royalty fee, against the use of the Amer-generated Porto brand. Amer EV / EBITDA (x) 3.7 3.8 3.8 Group currently owns a total of 5.5mn sqm, of which 2mn are yet to be developed; looking to expand this further.

Key Performance Ratios 2014a 2015a 1H16a (TTM) Land Bank (sqm mn) 5.5 Financial Statements - December Year End (EGP mn) Revenue Growth N/A 4.5% 6.4% Balance Sheet 2014a 2015a 1H16a (TTM) EBITDA Margin 20.6% 19.4% 15.2% Development Properties 2,528 3,061 2,889 EBIT Margin 17.3% 16.0% 13.3% Net Fixed Assets 974 1,249 1,278 Effective Tax Rate 31.7% 28.2% 21.6% Intangibles & Others 1,765 1,970 2,028 ROAE 14.3% 11.4% 12.0% Total Assets 5,267 6,280 6,195 ROAIC 36.8% 15.1% 15.5% Current Liabilities (Including Debt) 3,417 3,996 4,096 DPO 0.0% 0.0% 27.1% Long-Term Liabilities (Including Debt) 538 860 696 Net Debt (Cash) / Equity (x) (0.22) (0.26) (0.19) Total Net Worth 1,291 1,409 1,387 Minority Interest 21 14 16 Net Debt (Cash) / EBITDA (x) (0.93) (1.25) (0.87) Total Equity & Liabilities 5,267 6,280 6,195 Net Debt (284) (368) (258) Company and Stock Data Price (EGP) 0.30 on 21 August 2016 Income Statement Bloomberg / Reuters AMER EY / AMER.CA Revenue 1,767 1,846 1,964 MKT Cap (mn) / Shares (mn) EGP1,368 / 4,560 EBITDA 363 358 298 3M ADVT (mn) USD0.6 EBIT 306 295 261 Float 28% EBT 312 235 256 Foreign Ownership Limit No Limit Net Income 185 154 168 Major Shareholders Cash Flow Statement SOL Global Holding 35% CF from Operations 482 299 573 Amer Wakf 15% CF from Investments (209) (494) (277) Lantess International 10% CF from Finance & Non Operating CF (328) 332 (216)

Source: Amer Group, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 4 5 Share Price Performance Relative to HFI (VWAP) (Rebased) ARABIAN CEMENT COMPANY (EGYPT) FAIR VALUE EGP13.00 RATING BUY www.arabiancement.com 19.0 Arabian Cement Egypt (EGP) HFI (VWAP) 17.0 EGYPT 15.0 13.0 Materials INVESTMENT THESIS 11.0 Arabian Cement Company (Egypt) is amongst the top five cement producers in Egypt, with a clinker capacity of 9.0 4.2 mtpa that can produce 5.0 mtpa of cement. The company positions itself as a premium, quality brand with 7.0 c8% market share, supported by: i) a utilisation rate (85% in 2015) above the industry average (77%), ii) a focus QUESTIONS on high-demand Greater Cairo and Delta, and iii) a fleet for delivery service (plans to reach c70% of volume). ACC 5.0 differentiates itself with a commercially-driven, innovative management and is one of Egypt’s most profitable (30%+ 3.0 ROE) and cash generating firms. The company has been one of the first in the industry to change its fuel mix, with a capex plan of USD35 million (2013-15) to substitute natural gas with coal and RDF. In April 2014, the government 1. What is the outlook for demand for the remainder of the year and next year? allowed the use of coal in the cement industry to solve fuel supply disruptions that had been causing cement ...... shortages and price hikes. By 2016, we assume ACC’s fuel mix will be 78% coal, 15% RDF and 7% diesel, resulting 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 in an increase in clinker utilisation from 2014’s low level and elimination of clinker imports. We expect a solid growth 2. Do you think there will be enough projects to absorb expected large capacities in the coming years? in cement demand in 2016, supported by infrastructure projects, budget housing and demand from large developers...... (EGP) VALUATION & RISKS Valuation Statistics 2015a 2016e 2017e 2018e We value Arabian Cement Company (Egypt) at EGP13.0/share using a five-year discounted cash flow (DCF) valuation, EPS 0.72 0.77 0.89 1.06 3. When do you expect to reach the 70% coal 30% RDF fuel mix? applying: i) a RFR of 12% and an ERP of 6.5%, ii) a terminal growth rate (TGR) range of 4.0%, and iii) a terminal DPS 0.53 0.53 0.63 0.97 ...... EBITDA margin of 32.2%. We expect clean pre-tax earnings growth in 2016, due to revenue increase (volume BVPS 3.62 3.87 4.24 4.69 and price driven) and better energy mix as the shift to coal/RDF is completed, and the company produces all its clinker needs internally, that will offset rise in energy cost on EGP weakness. We would argue that ACC deserves to trade at a premium to local peers, given its proficient management and competitiveness that lead to above-peer- P/E (x) 9.22 8.69 7.50 6.28 average profitability, as well as its advantage in being an early mover to coal use. Catalysts to our valuation include: Dividend Yield 8.0% 7.9% 9.5% 14.6% i) expansions and acquisitions, and ii) higher utilisation and margins on stronger-than-expected demand recovery P/BV (x) 1.8 1.7 1.6 1.4 that supports cement prices. Downside risks include: i) regulations that affect the industry adversely such as price FCF Yield 21.9% 16.2% 18.4% 21.3% caps, export bans and coal taxes, ii) weaker-than-expected demand, and iii) application of stringent environmental standards. EV / EBITDA (x) 4.7 4.3 4.2 3.9

Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth -9.8% 4.0% 6.1% 8.2% Financial Statements - December Year End (EGP mn) EBITDA Margin 29.9% 31.2% 30.0% 29.9% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 20.9% 22.7% 21.9% 22.2% Current Assets 644 547 680 846 Effective Tax Rate -15.3% -22.5% -22.5% -22.5% Net Fixed Assets 2,671 2,552 2,432 2,313 Intangibles & Others 109 87 64 42 ROAE 20.5% 20.4% 21.9% 23.7% Total Assets 3,424 3,185 3,176 3,201 ROAIC 19.3% 22.7% 24.1% 28.0% Current Liabilities (Including Debt) 963 803 826 854 DPO 73.5% 69.0% 71.1% 91.4% Long-Term Liabilities (Including Debt) 1,089 917 744 572 Total Net Worth 1,372 1,466 1,606 1,775 Net Debt (Cash) / Equity (x) 0.49 0.31 0.12 (0.06) Minority Interest 0 0 0 0 Net Debt (Cash) / EBITDA (x) 0.99 0.62 0.25 (0.14) Total Equity & Liabilities 3,424 3,185 3,176 3,201 Net Debt 673 460 191 (114) Company and Stock Data Price (EGP) 6.65 on 21 August 2016 Income Statement Revenue 2,273 2,365 2,508 2,712 Bloomberg / Reuters ARCC EY / ARCC.CA (mn) (mn) EBITDA 680 738 753 810 MKT Cap / Shares EGP2,519 / 379 EBIT 474 536 548 602 3M ADVT (mn) USD0.3 EBT 327 380 440 526 Float 23% Net Income 277 294 341 407 Foreign Ownership Limit No Limit Appropriations (4) (4) (5) (6) Net Attributable Income 273 290 336 401 Major Shareholders Cementos La Union 60% Cash Flow Statement Al Boureiny Family 18% CF from Operations 708 552 600 667 CF from Investments (70) (60) (63) (66) CF from Finance & Non Operating CF (418) (573) (439) (469)

Source: Arabian Cement Company, EFG Hermes estimates Wafaa Baddour, CFA Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 6 7 Share Price Performance Relative to HFI (VWAP) (Rebased) ARAFA HOLDING www.arafaholding.com 0.20 Arafa (USD) HFI (VWAP) EGYPT 0.17 Consumer Discretionary BUSINESS DESCIPTION 0.15 Arafa Holding is a leading investor in the fashion industry; manufacturing, exporting and running textile and apparel retail operations through 21 subsidiaries, with 18 based in Egypt, one in England, one in Portugal and one in Italy. The 0.12 company targets three menswear markets: formal (76% of FY15/16 revenue), casual (9%), and luxury (15%). The group QUESTIONS manufactures and sells to prominent foreign retailers such as Cortefiel, Zara, Massimo Dutti, Moschino and Cerutti in Europe, Banana Republic, GAP and JC Penny in the US, among others. It recently obtained the property rights of Italian 0.10 fashion brands Marco Azzali and Borromeo Uomo in US, EU, and African markets. Arafa’s UK subsidiary, Baird Group, holds a c14% share of the UK men’s suits market, managing menswear concessions for major department stores like 1. How is current retail demand in Arafa’s respective markets? Does weakening demand in Europe have an impact on the outlook of margins? Debenhams, House of Fraser along with standalone stores. In 2016, Baird Group inked a deal for exclusive rights to ...... the Ben Sherman brand in UK and Ireland (annual sales GBP15-20mn) - includes design, production, sales, distribution 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 and management in addition to seven outlets, retail space and wholesale clients. Arafa Holding owns a 50% stake of 2. What are the main key strategic initiatives aimed for the business, particularly for Concrete? Egyptian Company for Garment Manufacturing “CAMEGIT”, a JV with “ErmenegildoZegna” established in 2012 to produce high-quality cotton shirts for exports out of Egypt, and a 35% stake of Italy’s ForallGroup, which it has agreed ...... (USD) to sell. Moreover, Arafa’s local menswear chain, ‘Concrete’, is the largest luxury retailer for menswear and kids wear in Valuation Statistics 2014a 2015a 2016a 1Q17a (TTM) Egypt (c47 stores). The company’s stock has been trading on the EGX since 2006 and is USD-denominated. EPS 0.01 0.02 0.02 0.02 3. How much room is there for increasing profitability (efficiencies, raw material costs or government support vis-à-vis export rebates)? DPS 0.00 0.01 0.00 0.01 ...... INVESTMENT THESIS BVPS 0.42 0.40 0.40 0.39 The company is relatively hedged against EGP devaluation risk owing to its export exposure and contribution of international operations. Arafa’s competitiveness is supported by luxury menswear knowledge, a vertically-integrated 4. What is the potential impact of the impending devaluation on the company’s earnings? & reasonable-cost production business model (that benefits from a comparatively lower cost environment, particularly P/E (x) 13.7 5.9 5.7 5.3 ...... labour costs), proximity to key markets (Europe), efficient transportation and free-trade agreements with the EU and the Dividend Yield 0.0% 7.7% 0.0% 7.7% US. Also, in 2015, Arafa hired a consulting agency Ben Andrews to advise on strategy and technical issues for Concrete P/BV (x) 0.3 0.3 0.3 0.3 to capitalise on sizeable local market growth. Also, Arafa is looking to potentially attract new brands to be manufactured in its facilities in Egypt through joint ventures with world-class players. Arafa’s FY15/16 earnings were up only 3% Y-o-Y. FCF Yield -8.3% -4.4% 16.6% 21.6% Revenue was flattish Y-o-Y with textiles revenue growing by c47%, while the industrial and retail segments revenues EV / EBITDA (x) 7.4 8.3 6.8 7.3 were negatively affected by currencies translation on the back of the USD appreciation against the group’s revenues basket of currencies including EGP, GBP and EUR. Key Performance Ratios 2014a 2015a 2016a 1Q17a (TTM) Revenue Growth -4.3% 3.1% 1.5% -1.1% Financial Statements - January Year End (USD mn) EBITDA Margin 10.3% 8.8% 10.6% 9.9% Balance Sheet 2014a 2015a 2016a 1Q17a (TTM) EBIT Margin 7.3% 6.1% 7.9% 7.3% Current Assets 277 293 300 295 Effective Tax Rate -26.5% -18.8% -18.8% -18.6% Net Fixed Assets 85 79 74 70 ROAE 1.9% 4.7% 5.1% 5.6% Intangibles & Others 111 100 89 86 Total Assets 474 473 464 451 ROAIC 4.4% 3.8% 5.2% 4.8% Current Liabilities (Including Debt) 191 180 189 185 DPO 0.0% 45.2% 0.0% 41.1% Long-Term Liabilities (Including Debt) 51 83 68 64 Net Debt (Cash) / Equity (x) 0.68 0.63 0.60 0.58 Total Net Worth 197 186 186 185 Net Debt (Cash) / EBITDA (x) 5.99 5.63 4.33 4.39 Minority Interest 35 23 20 18 Total Equity & Liabilities 474 473 464 451 Company and Stock Data Net Debt 159 132 124 117 Price (USD) 0.13 on 21 August 2016 Income Statement Bloomberg / Reuters AIVC EY / AIVC.CA (mn) (mn) Revenue 258 266 270 268 MKT Cap / Shares USD61 / 470 (mn) EBITDA 27 24 29 27 3M ADVT USD0 EBIT 19 16 21 20 Float 18% EBT 11 15 15 16 Foreign Ownership Limit No Limit Net Income 4 10 11 11 Major Shareholders Arafa Alaa 25% Cash Flow Statement Rajab Samaa 16% CF from Operations (0) 5 14 18 Hassan Ali Ben 12% CF from Investments (17) (9) (8) (2) CF from Finance & Non Operating CF (1) 29 (15) (16)

Source: Arafa Holding, EFG Hermes, and Bloomberg Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 8 9 Share Price Performance Relative to HFI (VWAP) (Rebased) CAIRO POULTRY www.cpg.com.eg 7.0 Cairo Polutry (EGP) HFI (VWAP) EGYPT 6.5

6.0 Consumer Staples

BUSINESS DESCIPTION 5.5 Cairo Poultry (CPC) is Egypt’s leading poultry and feed producer that is vertically integrated across the poultry value chain. The company produces: i) feed (c52% of 2015 revenue; market share 9%; largest single user of grain in Egypt) 5.0 and launched a new feed plant in 2013 with an investment cost of EGP170 million that nearly doubled capacity to960 QUESTIONS million tpa; and ii) poultry (c48% of revenue; c59% market share for the value added division). CPC operates six 4.5 farms, two hatcheries, 22 breeder farms, 54 broiler farms, as well as two large slaughtering facilities and a processing plant. The company has its own distribution fleet and retail outlets (c14), sells to retailers (brand name ‘Koki’) and B2B, 4.0 in addition to being the preferred Egyptian supplier of Kuwait Food Company (Americana, CPC’s largest shareholder) 1. How has profitability been faring at the chicken processing segment (the largest contributor to poultry revenue)? Historically, the division has not had very high margins? restaurants. CPC has a stake in Egypt for Starch and Glucose Company (c28%-owned)...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 INVESTMENT THESIS 21 Nov 15 2. Is the company facing increased competition from local and Brazilian products? CPC is well-positioned to bank on local consumption growth, mainly driven by low poultry consumption per capita (c12kg versus global average of c36kg). Diversification along the poultry value chain should allow it to profit from ...... (USD) various stages of production by selling to other poultry producers/farmers. However, in recent years, the growing Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) presence of organised poultry producers and imports has created an increasingly competitive environment. Integration EPS 0.60 0.22 1.56 1.36 3. What is the company’s exposure to devaluation? How much pricing control does CPC have in the feed and poultry divisions, and how is demand expected to be affected? to the feed level helps CPC to mitigate some input cost pressures and continued profitability volatility in the largest DPS 1.00 1.00 0.50 0.45 ...... poultry sub-division (processing). As feed inputs are imported, the company is exposed to currency devaluation, but BVPS 2.91 2.68 5.27 2.28 this can be offset through price increases, barring further demand weakness. In its largest two segments, feed and processing the company has ample capacity to ramp up (utilisation of 39% and 28%, respectively). 4. Does management foresee opportunities for acquisitions or expansions within the business? P/E (x) 8.0 21.8 3.1 3.5 ...... Dividend Yield 20.8% 20.8% 10.4% 9.5% P/BV (x) 1.7 1.8 0.9 2.1 FCF Yield 23.2% 8.3% 31.6% 31.4% EV / EBITDA (x) 5.33 5.87 5.08 5.25

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Revenue Growth 13.0% -2.3% 0.0% 5.6% Financial Statements - January Year End (USD mn) EBITDA Margin 20.1% 18.7% 21.6% 20.6% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 11.5% 13.0% 12.9% 11.9% Current Assets 659 638 804 1,012 Effective Tax Rate -8.4% -31.0% -16.3% -16.2% Net Fixed Assets 992 958 922 952 ROAE 22.2% 15.6% 29.0% 32.9% Intangibles & Others 291 330 323 215 Total Assets 1,942 1,926 2,049 2,179 ROAIC 15.3% 17.9% 17.9% 15.7% Current Liabilities (Including Debt) 602 713 871 1,164 DPO 165.8% 455.0% 32.1% 33.5% Long-Term Liabilities (Including Debt) 214 176 155 139 Net Debt (Cash) / Equity (x) 0.41 0.45 0.44 0.73 Total Net Worth 1,114 1,026 1,011 862 Net Debt (Cash) / EBITDA (x) 0.99 1.10 0.93 1.34 Minority Interest 12 11 14 13 Total Equity & Liabilities 1,942 1,926 2,049 2,179 Company and Stock Data Net Debt 460 467 454 636 Price (EGP) 4.80 on 21 August 2016 Income Statement Bloomberg / Reuters POUL EY / POUL.CA (mn) (mn) Revenue 2,318 2,266 2,265 2,298 MKT Cap / Shares EGP1,839 / 383 (mn) EBITDA 467 424 490 474 3M ADVT USD0 EBIT 266 295 291 273 Float 47% EBT 254 246 362 366 Foreign Ownership Limit No Limit Net Income 231 168 299 312 Major Shareholders Americana Group For Food 33% Cash Flow Statement Egyptian Intl Touris 15% CF from Operations 468 361 331 313 Nasser Social Bank 5% CF from Investments (159) (210) (140) (61) CF from Finance & Non Operating CF (225) (114) (146) 85

Source: Cairo Poultry, EFG Hermes, and Bloomberg Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 10 11 Share Price Performance Relative to HFI (VWAP) (Rebased) CLEOPATRA HOSPITAL COMPANY | CHC FAIR VALUE EGP11.70 RATING BUY www.cleopatrahospital.com Cleopatra Hospital (EGP) HFI (VWAP) 10.5 EGYPT

10.0 Healthcare INVESTMENT THESIS 9.5 Through the acquisition of four hospitals from 2014-1Q16, CHC is the largest private, institutional hospital group in Egypt with 624 beds (treating c47k inpatients annually) and 65 clinics (receiving over c0.6mn outpatient visits per 9.0 annum). The four hospitals are located in prime locations in Cairo, have a strong track record, and are well-known QUESTIONS brands: Cleopatra Hospital, Cairo Specialized Hospital (CSH), Nile Badrawi Hospital (NBH), and Al Shorouk Hospital. 8.5 Cleopatra Hospital Company is the entity that legally owns CSH (52.7%), NBH (99.9%) and Al Shorouk (99.4%) as well as being an operational hospital in itself. The recent acquisition of the four hospitals suggests there is large 8.0 potential to unlock value through synergies within the group of hospitals and restructure each hospital to improve 1. What is the progress of the restructuring plan for hospitals and what would it add to revenue and margins? quality and profitability. CHC has allocated cEGP124mn for capex in 2016 to finance the restructuring plan. CHC ...... went public in 2Q16 in a secondary offering, worth EGP360mn. A primary offering will follow via a capital increase 21 Aug 16 02 Jun 16 02 Jul 16 12 Jul 16 01 Aug 16 11 Aug 16 restricted to selling shareholders only. 12 Jun 16 22 Jun 16 22 Jul 16 2. Can you pass on inflationary pressure, and what is the impact of further EGP devaluation on margins?

VALUATION & RISKS ...... (EGP) We value CHC with a DCF-based valuation that derives a FV of EGP11.70 (post capital increase). Our DCF valuation Valuation Statistics 2015a 2016e 2017e 2018e is based on 14.2% WACC and 6% TGR. Catalyst to our forecasts include use of the IPO proceeds (supported by EPS 0.27 0.30 0.59 0.80 3. The sales mix has been in favor of contract sales, do you expect this trend to sustain and what is its impact on margins? improved leverage capacity post the capital increase) to add new capacity (c50% addition to its number of beds) to DPS 0.00 0.00 0.00 0.44 ...... meet the demand from Egypt’s underserved market. The expansion plan includes the acquisition of a new hospital BVPS 0.79 2.69 3.28 4.08 (built but not yet operational) in New Cairo (total expected investment of EGP300-350mn, 200 beds, 20 clinics) and setting up two extension buildings next to Cleopatra and Al Shorouk hospitals (total expected investment of 4. Are you near to closing any new acquisition deals? EGP400mn, 140 beds, 12 clinics). Main risks include ability to pass on higher costs due to EGP devaluation (though P/E (x) 34.84 31.64 16.15 11.89 ...... industry prices are unregulated), competition with several hospitals coming on-line in Cairo, and slower execution of Dividend Yield 0.0% 0.0% 0.0% 4.7% the restructuring plan. P/BV (x) 12.0 3.5 2.9 2.3 5. What is the progress of the legal cases, if any? FCF Yield N/A 2.5% 10.0% 10.8% ...... EV / EBITDA (x) 11.3 9.4 7.7 6.4

Key Forecast Drivers 2015a 2016e 2017e 2018e Financial Statements - December Year End (EGP mn) Revenue Growth N/A 15.5% 17.4% 16.4% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 24.7% 25.9% 26.9% 27.8% Current Assets 198 490 624 777 EBIT Margin 22.6% 21.8% 23.2% 24.9% Net Fixed Assets 377 471 477 485 Intangibles & Others 280 275 270 270 Effective Tax Rate -32.7% -28.4% -26.1% -25.0% Total Assets 856 1,237 1,370 1,531 ROAE N/A 15.9% 19.6% 21.7% Current Liabilities (Including Debt) 230 230 280 341 ROAIC N/A 26.6% 29.1% 36.7% Long-Term Liabilities (Including Debt) 463 418 367 297 DPO 0.0% 0.0% 0.0% 55.6% Total Net Worth 126 539 656 816 Minority Interest 36 50 67 77 Net Debt (Cash) / Equity (x) 2.34 0.09 (0.14) (0.32) Total Equity & Liabilities 856 1,237 1,370 1,531 Net Debt (Cash) / EBITDA (x) 2.07 0.24 (0.39) (0.87) Net Debt 379 54 (105) (283)

Income Statement Company and Stock Data Revenue 741 856 1,006 1,170 Price (EGP) 9.48 on 21 August 2016 EBITDA 183 222 271 325 Bloomberg / Reuters CLHO EY / CLHO.CA EBIT 168 186 234 292 MKT Cap (mn) / Shares (mn) EGP1,517 / 160 EBT 77 102 192 264 3M ADVT (mn) USD0.4 Net Income 44 59 125 177 Float 20% Appropriations N/A (6) (8) (18) Foreign Ownership Limit No Limit Net Income 44 53 117 160 Major Shareholders Cash Flow Statement Care Healthcare Limited 80% CF from Operations NA 166 226 246 CF from Investments NA (124) (37) (42) CF from Finance & Non Operating CF NA 234 (77) (77)

* Pro forma financials for 2015

Source: Cleopatra Hospital Company (CHC), EFG Hermes estimates Wafaa Baddour, CFA Adham El Badrawy INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 12 13 Share Price Performance Relative to HFI (VWAP) (Rebased) COMMERCIAL INTERNATIONAL BANK (CIB) FAIR VALUE EGP46.38 RATING NEUTRAL www.cibeg.com 55.0 CIB (EGP) HFI (VWAP)

50.0 EGYPT

45.0 Financials

INVESTMENT THESIS 40.0 Commercial International Bank (CIB) is Egypt’s largest private sector bank by assets, with a lending market share of 8.7%, and by market capitalisation. Its business is mostly focused on the domestic market. CIB’s market share is 35.0 relatively small in the sector context, as Egypt’s three main state-owned banks account for c45% of sector assets. QUESTIONS However, CIB has one of Egypt’s strongest corporate franchises, which has traditionally been its core business. Since 30.0 2008, CIB has focused on increasing its retail banking exposure, a sector offering significant growth potential in Egypt, as household loans only account for c9% of nominal GDP. We like CIB’s positioning in the domestic market, its current 25.0 focus on growing retail loans, and its low credit risk profile, as it primarily banks with blue-chip Egypt corporates. 1. CIB has managed to increase the share of low-cost deposits (current and saving accounts) to total deposits over the past three years, and one of the key drivers for this has been the increase in payroll accounts. Is there further scope to grow payroll clients, and can CIB continue growing the share of CASA deposits in 2016? VALUATION & RISKS Do you view the slowdown in deposits in 2Q16 as a one-off or as the beginning of a trend? 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 We derive our fair value (FV) for CIB using a Discounted Equity Cash Flow (DECF) methodology. We calculate equity 21 Nov 15 ...... cash flows by subtracting from our net income estimates (a proxy for cash flows) the amount required to finance growth in risk-weighted assets so that the capital adequacy ratio is maintained at the 10% target level. We use our (EGP) profit and balance sheet growth forecasts for eight years and calculate the terminal value for the business at the Valuation Statistics 2015a 2016e 2017e 2018e 2. What is the share of SME loans (Central Bank definition) in the bank’s loan book, and how do you expect to bring this share up to 20% in the next four years, as per CBE end of the forecast period (2023) based on a terminal perpetuity of 8%. We use a CAPM model to arrive at our EPS 3.66 4.53 5.34 6.29 regulations? DPS 0.75 0.80 1.00 1.20 discount rate of 18.5%. We use a risk-free rate of 12.5% and an equity risk premium of 6%. Key downside risks to ...... our estimates include weaker-than-expected credit quality if weak economic conditions are prolonged or if the EGP BVPS 13.20 16.49 20.39 25.04 depreciates strongly vs the USD. P/E (x) 13.8 11.2 9.5 8.0 3. Do you expect traders/importers to be a driver of credit quality worsening in the short term in light of the potential upcoming depreciation of the EGP? Dividend Yield 1.5% 1.6% 2.0% 2.4% ...... P/BV (x) 3.8 3.1 2.5 2.0 Mkt Cap / Deposits 37.5% 31.3% 27.2% 23.7% 4. Do you expect NIMs to face downward pressure as the high-yielding bonds which the bank bought in 2012 began to mature starting 2017? What is the contribution of these high-yielding bonds to the total investment book? ROAE 29.7% 30.5% 28.9% 27.7% ROAA 2.6% 2.6% 2.7% 2.7% ......

Key Forecast Drivers 2015a 2016e 2017e 2018e 5. The bank now has NPL coverage of c190%. To which level would you like to see NPL coverage drop should there be a rise in NPLs? Do you think the cost of risk of c300bps Growth in Loans 16.7% 9.2% 12.5% 15.2% in FY2015 could fall, bearing in mind the slowdown in GDP growth, potential devaluation in 2016 and, perhaps, increasing SME loans this year? (EGP mn) Financial Statements - December Year End Growth in Deposits 27.3% 20.0% 15.0% 15.0% ...... Balance Sheet 2015a 2016e 2017e 2018e Loans / Deposits 36.6% 33.3% 32.6% 32.6% Cash & Central Bank 9,849 12,108 13,925 16,013 Growth in Net Interest Inc. 29.3% 25.0% 15.7% 13.8% 6. Do you expect the new restrictions on debt service ratio (up to 35% of monthly salary for personal, consumer loans and credit cards) to lead to a slowdown in retail loan Growth in Non-Interest Inc. 28.6% 11.3% -5.1% 11.1% Interbank Assets 21,041 26,079 29,991 34,490 growth in 2016? Loans (Net) 56,798 62,025 69,747 80,371 Net Interest Spread 4.88% 5.05% 4.95% 4.80% Financial Investments 83,770 103,364 122,520 142,469 Net Interest Margin 5.29% 5.44% 5.35% 5.25% ...... Fixed & Other Assets 8,043 8,909 9,343 9,841 Cost / Income 25.0% 25.0% 25.7% 25.6% Total Assets 179,500 212,485 245,525 283,185 NPL Ratio 4.0% 4.4% 5.0% 4.5% Due to Banks 1,601 931 1,285 1,478 NPL Coverage Ratio Customer Deposits 155,234 186,281 214,223 246,357 189.5% 206.2% 192.6% 216.7% Bonds & Long-Term Loans 131 150 160 170 Capital Adequacy Ratio 16.4% 16.1% 16.7% 18.1% Dividend Payable & Other Liabilities 7,345 6,159 6,419 6,405 Total Liabilities 164,311 193,522 222,088 254,411 Company and Stock Data Minority Interest 47 48 49 50 Price (EGP) 50.50 on 21 August 2016 Shareholders' Equity & Other Capital 15,141 18,915 23,388 28,724 Bloomberg / Reuters COMI EY / COMI.CA Total Shareholders' Equity & Liabilities 179,500 212,485 245,525 283,185 MKT Cap (mn) / Shares (mn) EGP58,270 / 1,154 Income Statement 3M ADVT (mn) USD10.7 Net Interest Income 8,115 10,147 11,740 13,357 Float 93% Non-Interest Income 2,242 2,496 2,368 2,631 Foreign Ownership Limit No Limit Total Banking Income 10,357 12,643 14,108 15,988 Operating Expense (2,057) (2,498) (2,848) (3,169) Major Shareholders Total Provisions (1,818) (1,966) (1,606) (1,589) Fairfax Holding 6% Other Income/Expense 61 - - - Income before Taxes 6,543 8,179 9,654 11,230 ADIA 5% Net Income 4,730 5,852 6,900 8,130 Minority Interest and Profit Sharing (534) (661) (779) (918) Net Attributable Income 4,195 5,191 6,120 7,212

Source: Commercial International Bank (CIB), EFG Hermes estimates Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 14 15 Share Price Performance Relative to HFI (VWAP) (Rebased) DOMTY FAIR VALUE EGP10.20 RATING BUY www.domty.org 12.0 Domty (EGP) HFI (VWAP)

11.0 EGYPT

10.0 Consumer Staples INVESTMENT THESIS 9.0 Established in 1990, Domty is Egypt’s largest white cheese producer (c41% market share), owing to its leadership in carton pack cheese (c66% of 2015 revenue). Domty’s first diversification away from cheese was in 2013, with the 8.0 launch of juice (c16%), and it is now the fifth largest player in a competitive market. It is looking to further diversify QUESTIONS with the launch of cheese sandwich (2H2016) and hard cheese (early 2017, largest segment of cheese market) 7.0 products. The company is increasing capacity c38% in 2016e, leveraging on a new factory that will be concluded in 6.0 2H16. Given its status as Tetra Pak’s largest white cheese producer client globally, the company receives a number of benefits including discounts and flexible machinery payment terms. EGP devaluation is a key risk as nearly half of 1. How much of the company’s FX needs is being sourced from the parallel market? What is the company’s strategy in light of devaluation? raw materials are imported, however, it is relatively manageable, given low commodity prices, pricing flexibility and How easy is it to raise product prices, and to what extent can consumers accept price increases? exports (c7% of top-line) that provide over 20% of FX needs and should increase, aided by a planned JV to export ...... 21 Mar 15 21 Apr 16 21 May 15 21 Jun 15 21 Aug 16 to Africa. Domty injected cEGP300mn from its 1Q16 IPO proceeds into the business, mainly to increase distribution 21 Jul 16 investments to reduce reliance on agents and increase direct reach (to c60% of local sales from c39%) that should help improve working capital management and margins. We have a Buy rating on Domty as it trades at a heavy 2. What is the reason behind the surge in SG&A costs in 1H16? What is a sustainable level of SG&A costs to sales? (EGP) discount to global dairy peers despite strong growth prospects (5-year earnings CAGR of 26%), driven by capacity Valuation Statistics 2015a 2016e 2017e 2018e ...... additions, product diversification and the shift away from the agent distribution model. We also like the company’s EPS 0.45 0.31 0.42 0.59 strong profitability profile with a sustainable RoAE of 30%+. DPS 0.00 0.10 0.19 0.26 3. How much of the planned phase-out of agents has been executed since the IPO, and what is the ultimate target contribution of agents to the total business? BVPS 0.63 1.81 2.03 2.37 ...... VALUATION & RISKS We value Domty using a discounted cash flow (DCF) methodology, yielding a fair value of EGP10.20/share. Upside risks include: i) greater capacity additions beyond 2016; ii) better margins on lower input costs and/or rapid shift away P/E (x) 15.90 22.92 17.22 12.14 4. What is the expected timeline for introducing new products (cheese sandwich, yellow cheese, etc.) to the market, and how will these affect numbers? from the agent distribution model; iii) faster improvement in working capital management as direct reach increases; Dividend Yield 0.0% 1.4% 2.6% 3.7% ...... iv) acceleration in exports; iv) fast ramp-up of planned new products (cheese sandwich, hard cheese) and any further P/BV (x) 11.3 4.0 3.5 3.0 diversification efforts; v) higher product price increases; and vi) value-accretive acquisitions. Downside risks include: i) FX risk as nearly half of the company’s raw materials are imported; ii) a spike in prices of main inputs (SMP, vegetable FCF Yield -0.9% -1.7% 1.3% 7.7% oil, etc.); iii) difficulty in raising product prices to pass on large cost increases; iv) slow ramp-up of direct distribution EV / EBITDA (x) 9.2 10.8 8.7 6.6 capabilities leading to sustained long receivable collection days; v) lower capacity additions; vi) elimination/reduction of Tetra Pak benefits; vii) weak uptake of new ventures; viii) competition risk; and ix) key person risk. Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth 24.0% 20.0% 21.9% 18.0% Financial Statements - December Year End (EGP mn) EBITDA Margin 17.2% 12.1% 12.4% 13.7% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 15.6% 10.2% 10.5% 11.9% Current Assets 526 874 925 1,018 Effective Tax Rate -22.2% -25.1% -22.5% -22.5% Net Fixed Assets 209 363 378 386 Intangibles & Others - 0 0 0 ROAE 96.9% 25.2% 21.7% 26.9% Total Assets 735 1,237 1,303 1,403 ROAIC 38.2% 27.4% 31.4% 40.5% Current Liabilities (Including Debt) 496 621 655 672 DPO 0.0% 32.2% 44.9% 44.4% Long-Term Liabilities (Including Debt) 80 105 73 62 Total Net Worth 158 511 576 669 Net Debt (Cash) / Equity (x) 2.06 0.05 0.02 (0.16) Minority Interest 0 0 (1) 0 Net Debt (Cash) / EBITDA (x) 1.36 0.13 0.06 (0.32) Total Equity & Liabilities 735 1,237 1,303 1,403 Net Debt 326 27 14 (106) Company and Stock Data Price (EGP) 7.19 on 21 August 2016 Income Statement Revenue 1,400 1,681 2,048 2,417 Bloomberg / Reuters DOMT EY / DOMT.CA (mn) (mn) EBITDA 241 204 254 332 MKT Cap / Shares EGP2,032 / 283 EBIT 218 172 215 287 3M ADVT (mn) USD0.5 EBT 165 127 170 241 Float 43% Net Income 129 95 132 186 Foreign Ownership Limit No Limit Appropriations (22) (14) (15) (19) Net Attributable Income 113 84 118 167 Major Shareholders Al Damaty Family 29% Cash Flow Statement Yehia Bin Laden 16% CF from Operations 52 146 141 258 Trevi Holding 12% CF from Investments (25) (125) (54) (38) CF from Finance & Non Operating CF (24) 288 (77) (143)

Source: Domty, EFG Hermes estimates Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 16 17 Share Price Performance Relative to HFI (VWAP) (Rebased) EDITA FAIR VALUE EGP11.80 RATING NEUTRAL www.edita.com.eg 22.0 Edita (EGP) HFI (VWAP) EGYPT

17.0 Consumer Staples INVESTMENT THESIS Established in 1997, Edita is Egypt’s second largest snack producer (c12% market share) and operates in five segments: cake (Hohos, Twinkies & Tiger Tail [HTT brands] and Todo, c54% of 2015 revenue, c64% 2015 market share), croissant 12.0 (Molto, c34%, c68%), rusks (Bake Rolz and Bake Stix, c4%, c37%), wafer (Freska, c4%, c8%) and candy (Mimix, c4%, QUESTIONS c12%). The company is a play on Egypt’s underpenetrated and fast-growing snack market (cEGP17.5bn, c20% CAGR) with the opportunity to diversify as it is only present in less than a third of the total snack market. Edita increased capacity 7.0 c35% in 2015 (+10% in 2016e) and we expect further significant additions post the completion of new plant E08 (55k sqm, to house 10-12 lines, first phase to be concluded by end-2016) that should drive strong revenue growth (c20% 1. What capacity expansions are planned from 2016 onwards, particularly at the new plant (E08)? Do these include new brands acquired under the HTT agreement and/or 2016-20e CAGR). It has a superior profitability profile (EBITDA margin of c22-23%, RoAE of c40%) supported by: i) a new categories? diversified raw material cost base, ii) relatively low yet effective marketing spend, and iii) limited FX risk (c20% of cash ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 costs, c50% covered by exports). While the pricing environment is challenging (increases limited to EGP0.5 increments), 21 Nov 15 Edita has a proven track record of indirect price increases. The company has strong FCF generation and a liquid balance sheet owing to its consistently negative cash conversion cycle (97%+ of sales are in cash). We have a Neutral rating 2. Will the company continue to embark on upsizing existing products similar to what has recently been done with Twinkies, or will the focus be on launching higher-priced (EGP) on Edita as we believe its superior growth prospects (2016-20e earnings CAGR of 20%) and profitability profile are Valuation Statistics 2015a 2016e 2017e 2018e new products? How are Twinkies’ sales doing after the upsizing? adequately reflected in its current valuation premium to peers. EPS 0.47 0.42 0.47 0.64 ...... DPS 0.11 0.11 0.21 0.31 VALUATION & RISKS BVPS 1.51 1.75 2.02 2.36 3. What has been the main driver behind the surge in SG&A costs in 1H16? What is a sustainable level of SG&A costs to sales? We value Edita using a discounted cash flow (DCF) methodology yielding a fair value of EGP11.80/share (USD6.64/GDR). Upside risks include: i) greater capacity additions; ii) better margins on lower input costs, better sales mix and/or faster ...... migration at higher price points; iii) greater exports (c6% of 2015 sales) particularly in light of recent agreement with P/E (x) 24.61 27.30 24.82 18.09 Hostess Brands acquiring rights to HTT brands in 12 additional geographies; iv) successfully venturing into new snack Dividend Yield 1.0% 1.0% 1.8% 2.7% 4. How is the company affected by devaluation? How much of the company’s costs are imported, and do they have pricing flexibility? How much of FX needs are sourced categories (biscuits, chocolates, etc.); and v) value accretive expansions outside Egypt. Downside risks include: i) slower- P/BV (x) 7.7 6.6 5.7 4.9 from the black market? than-expected capacity additions; ii) dedicating new capacities primarily to new categories and/or geographies that may take time to profitably ramp up; iii) difficulty in raising product prices given low price points; iv) spike in raw material costs FCF Yield 0.5% -0.7% -0.5% 1.1% ...... (60%+ of cash costs); v) higher staff costs (20%+ of cash costs) especially if the company runs expensive overtime shifts; EV / EBITDA (x) 16.9 16.4 14.4 11.1 vi) FX risk (25%+ of inputs are imported); vii) lower volume growth on greater competition and/or demand saturation; and viii) key person risk (CEO is from the founding family and is involved in setting and implementing strategies). Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth 16.0% 7.7% 15.6% 26.0% Financial Statements - December Year End (EGP mn) EBITDA Margin 23.1% 22.1% 21.8% 22.4% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 19.7% 17.7% 17.3% 18.3% Current Assets 671 465 404 548 Effective Tax Rate -21.5% -22.5% -22.5% -22.5% Net Fixed Assets 1,300 1,586 1,845 1,922 Intangibles & Others 162 161 159 158 ROAE 40.5% 30.3% 28.3% 33.0% Total Assets 2,133 2,212 2,409 2,629 ROAIC 33.0% 25.7% 23.4% 29.6% Current Liabilities (Including Debt) 595 557 660 712 DPO 23.8% 26.4% 45.4% 48.8% Long-Term Liabilities (Including Debt) 443 385 287 206 Total Net Worth 1,088 1,259 1,443 1,681 Net Debt (Cash) / Equity (x) 0.09 0.21 0.17 (0.01) Minority Interest 6 11 18 30 Net Debt (Cash) / EBITDA (x) 0.20 0.50 0.40 (0.02) Total Equity & Liabilities 2,133 2,212 2,409 2,629 Net Debt 102 262 243 (18) Company and Stock Data Price (EGP) 11.55 on 21 August 2016 Income Statement Revenue 2,225 2,396 2,770 3,491 Bloomberg / Reuters EFID EY / EFID.CA (mn) (mn) EBITDA 514 529 605 781 MKT Cap / Shares EGP8,378 / 725 EBIT 438 425 479 640 3M ADVT (mn) USD2.1 EBT 445 332 445 612 Float 38% Net Income 345 252 338 463 Foreign Ownership Limit No Limit Appropriations (4) (4) (5) (6) Net Attributable Income 273 290 336 401 Major Shareholders Berco Ltd. 42% Cash Flow Statement Exoder Ltd. (Chipita) 13% CF from Operations 328 438 397 518 Africa Samba B.V (Actis) 8% CF from Investments (252) (442) (390) (386) CF from Finance & Non Operating CF (38) 127 (234) (220)

Source: Edita, EFG Hermes estimates Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 18 19 Share Price Performance Relative to HFI (VWAP) (Rebased) EFG HERMES www.efghermes.com 14.0 EFG Hermes (EGP) HFI (VWAP) EGYPT 12.0 Financials BUSINESS DESCIPTION 10.0 EFG Hermes Holding is the premier Investment Bank in the MENA region, headquartered in Egypt and with presence in the UAE, Saudi Arabia, Kuwait, Jordan, and Oman. The firm offers diverse investment banking services, which 8.0 include: Securities Brokerage, with leading positions across the majority of MENA markets; a first-class Investment Banking division, with total executions in excess of USD78 billion; one of the largest asset managers in the region, with USD2 billion in AuMs; a growing private equity franchise, with USD1.1 billion in AuMs, and the highest quality 6.0 research coverage in MENA, covering 60% of the region’s market cap. In addition, EFG Hermes recently launched its non-bank finance platform, with the leasing business and the micro-finance player, Tanmeyah, operating under its umbrella. The leasing business was launched in June 2015 and managed to grow its market share quickly to reach 4.0 9% in 1H16, representing a fifth place positioning in the market. EFG Hermes has also completed the acquisition of 94% of the leading micro-finance player, Tanmeyah, in 2Q16. 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 INVESTMENT THESIS EFG Hermes focuses on implementing a new strategy that aims at enhancing its product offering and geographical Valuation Statistics (EGP) 2013a 2014a 2015a 1H16aTTM presence as the firm completes its partial exit from the Lebanese Commercial Bank, Credit Lebanais. The firm’s announced strategy is centred upon reinforcing its subsidiaries via capital injection as it emphasises its commitment to EPS (0.9) 1.0 0.8 0.0 its Investment Bank platform. EFG Hermes currently aims at: i) growing the firm’s public and private AuMs to a level DPS 0 0 0 0 that is expected to generate a steady annual flow; and ii) transforming EFG Hermes into a Frontier House, offering BVPS 15.4 16.0 16.2 14.2 wider reach to better serve our clients, with a first step being taken by the firm via signing SPA with shareholders owning a majority stake to acquire 51% of Invest & Finance Securities Limited, a listed entity on Pakistan Securities P/E (x) N/M 15.6 16.5 N/R Exchange. Moreover, the firm will be looking into adopting a Merchant Banking Model by leveraging on its stronger, Dividend Yield N/A N/A N/A N/A liquid balance sheet. P/BV (x) 1.2 1.0 0.8 0.9

Key Performance Ratios 2013a 2014a 2015a 1H2016* Group Operating Revenue Financial Statements - December Year End (EGP mn) 20% 19% 0% 35% Growth Group Operating Expenses Balance Sheet 2013a 2014a 2015a 1H16a TTM 15% -1% 5% 47% Cash & Due from banks 16,534 22,466 26,456 6,801 Growth Group Net Operating Profit Investments at fair value through P&L 1,124 843 585 730 35% 67% -6% 13% Growth Loans to customers 18,069 20,200 22,767 116 Group Net Operating Profit 29% 41% 38% 28% AFS Investments 1,787 1,761 1,839 1,549 Margin Net Fixed Assets 1,307 1,538 1,679 193 Employee Expenses / 71% 45% 50% 51% Net Leased Assets - - 467 851 Operating Revenue** Assets held for sale - - - 1,237 * Credit Libanais was deconsolidated in 2Q16, thus the figures above reflects the Investment Bank performance Other Assets 28,551 28,856 34,606 2,723 ** The ratio reflects Investment Bank Employee Expenses/Operating Revenue Total Assets 67,372 75,664 88,400 14,200 Due to Banks & Fin. Institutions 917 2,686 3,855 568 Company and Stock Data Customers' Deposits 49,745 54,853 64,246 - Price (EGP) 12.73 (EGP) on 21 August 2016 Accounts Payable 1,156 1,916 1,987 2,798 Bloomberg / Reuters HRHO EY / HRHO.CA Creditors and other credit balances 1,368 1,415 1,878 730 (mn) (mn) Provisions 320 355 423 256 MKT Cap / Shares EGP7,631/614.9 (mn) Other Liabilities 2,060 2,157 2,628 987 3M ADVT EGP43.6 Total Liabilities 55,566 63,382 75,016 5,339 Float 68.0% Total Shareholders' Equity 11,805 12,282 13,384 8,861 Foreign Ownership Limit No Limit

Major Shareholders Income Statement Natixis S.A. Net Interest Income 1,039 966 1,140 577 11.8% Non Interest Income 1,347 1,645 1,455 1,474 (DF EFG3 Limited) Total Revenue 2,386 2,612 2,595 2,051 Abdel Moneim Al Rashed 8.3% Operating Expenses (1,637) (1,647) (1,682) (1,426) The Bank of New York Mellon Net Income before Tax (241) 830 761 510 11.9% Net Attributable Income (540) 538 461 2 (GDRs)

Source: EFG Hermes Hanzada Nessim Mohab Bakr INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 20 21 Share Price Performance Relative to HFI (VWAP) (Rebased) EGYPTIAN RESORTS COMPANY FAIR VALUE EGP0.87 RATING NEUTRAL www.erc-egypt.com 1.3 Egyptian Resorts (EGP) HFI (VWAP) 1.2 EGYPT 1.1 Real Estate & Hospitality 1.0 INVESTMENT THESIS Egyptian Resorts Company, ERC, is the master developer of the Sahl Hasheesh project that overlooks the Red Sea 0.9 coast. The company’s target market is focused on sub-developers that are developing residential communities and 0.8 hotels within the project. ERC has access to 3.2mn sqm of residual land, with initial plans to develop around half of QUESTIONS the area into a large community, Sawari, and sell the remaining part to third-party developers. Currently, land sales 0.7 constitute, predominantly, ERC’s biggest revenue and cash generator. The company also develops, constructs and 0.6 markets residential and commercial real estate and provides community management services and supply utilities. ERC has a relatively limited land bank and high volatility profile being linked to the tourism activity in the country, 1. What is the company’s strategy, in light of the increased market challenges? which makes it a less attractive investment opportunity compared to its local peers, in our opinion. However, we ...... believe ERC’s valuation and growth potential will be affected significantly, should the company regain title for its 20mn 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 sqm phase III land. This will add EGP8.0bn (EGP7.6/share) to our 2016e NAV, on our numbers, assuming USD58 price/ 2. What is the outlook for service and utility segments? What scale is needed in order for the segment to turn profitable? sqm (50% discount to assumed selling prices) and EGP2.29/share to our fair value...... (EGP) VALUATION & RISKS Valuation Statistics 2015a 2016e 2017e 2018e We set our fair value of EGP0.87 per share based on 0.3x 2016e NAV, where we think the stock should trade at a EPS 0.13 0.05 0.03 0.01 3. What is the likely outcome of the TDA decision on the withdrawal of phase III land? What will the company’s strategy be in this event? steep discount to its full NAV, which we estimate at EGP2.9 per share. Our NAV is derived by valuing the company’s DPS 0.00 0.00 0.00 - ...... land bank based on recent land sales transaction prices within the community, according to management disclosure, BVPS 0.80 0.93 0.98 1.02 which has been picking up recently, with improvement in Egypt’s political situation and better tourism activity. We assign a 70% discount to our calculated 2016e NAV, the highest within our coverage universe in Egypt, in line with P/E (x) 6.07 15.83 23.54 60.62 that applied to Heliopolis Housing, given the company’s current business model adopted being a master developer Dividend Yield 0.0% 0.0% 0.0% 0.0% and our relatively low visibility regarding development plans. Should the company manage to regain ownership over 20mn sqm phase III land, this will add EGP7.6 per share to our NAV, which would imply a significant upside potential P/BV (x) 1.0 0.9 0.8 0.8 to our valuation and offer a much better growth potential for the company’s operations, especially in light of its FCF Yield 23.5% 24.9% 26.8% 23.4% currently limited residual land. Downside risks to our valuation primarily include a hard landing of Egypt’s property EV / EBITDA (x) 3.8 4.0 9.8 13.8 market and increased political risk, which would affect our land valuation negatively. P/NAV (x) 0.28 - - -

Key Forecast Drivers 2015a 2016e 2017e 2018e Land Bank (mn sqm) 3.2 Financial Statements - December Year End (EGP mn) Revenue Growth 680.2% -2.6% -10.9% -0.9% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 55.9% 53.2% 24.8% 17.7% Work in Progress 527 516 480 439 EBIT Margin 49.6% 47.0% 17.8% 10.6% Short-term Receivables 336 457 386 273 Effective Tax Rate -0.4% 22.5% 22.5% 22.5% Intangibles & Others 761 863 1,055 1,262 ROAE 29.7% 15.2% 5.3% 3.4% Total Assets 1,624 1,836 1,921 1,975 ROAIC 30.8% 30.8% 11.6% 9.3% Current Liabilities (Including Debt) 463 529 552 565 Long-Term Liabilities (Including Debt) 273 281 289 295 DPO 0.0% 0.0% 0.0% 0.0% Total Net Worth 843 981 1,034 1,070 Net Debt (Cash) / Equity (x) (0.20) (0.28) (0.45) (0.63) Minority Interest 45 45 45 45 Net Debt (Cash) / EBITDA (x) (0.78) (1.38) (5.63) (11.50) Total Equity & Liabilities 1,624 1,836 1,921 1,975 Net Debt (175) (286) (485) (700) Company and Stock Data Price (EGP) 0.80 on 21 August 2016 Income Statement Revenue 400 390 347 344 Bloomberg / Reuters EGTS EY / EGTS.CA (mn) (mn) EBITDA 224 208 86 61 MKT Cap / Shares EGP840 / 1,050 EBIT 199 183 62 37 3M ADVT (mn) USD0.4 EBT 217 179 69 46 Float 41% Net Income 218 138 53 36 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations 2 198 209 226 KATO Investments 12% CF from Investments 2 (0) (0) (0) First Arabian Company 10% CF from Finance & Non Operating CF (9) (9) (7) (10) Rowad Tourism 9%

Source: Egyptian Resorts Company, EFG Hermes estimates

Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 22 23 Share Price Performance Relative to HFI (VWAP) (Rebased) EK HOLDING FAIR VALUE USD0.80 RATING BUY www.ekholding.com 0.7 EK Holding (USD) HFI (VWAP) EGYPT 0.6 Financials INVESTMENT THESIS 0.5 EKH is an Egypt-based conglomerate with a dual listing in Egypt (EKHO.CA) and Kuwait (EKHK.KW). It was established in 1997 by private investors to capitalise on the economic reform programmes in the region and has 0.4 grown since then to become one of the largest listed holding companies in Egypt. EKH has a wide asset portfolio QUESTIONS across different economic sectors, but its investments in fertilisers (through 38%-owned Alexfert) and chemicals (through 100%-owned Sprea) are the major value drivers, in our view. c58% of the outstanding shares are owned by 0.3 fragmented investors, of which Al-Kharafi family is the largest, and the remaining 42% is publicly owned. In fertilisers, we are bearish on prices due to global oversupply, as well as the possible supply curtailments faced by Alexfert, but 1. Are there any potential acquisition targets that the company is looking into currently? What are the sectors that are of most interest? a general improvement in gas supply should transform the subsidiary back into the green. EKH also owns a leading ...... downstream chemicals producer in Egypt through Sprea, with over 80% share of the captive Egyptian market and 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 several expansion opportunities. Utilities operations at Natenergy continue to grow by adding new customers to 2. Will the company remain on its path of deconsolidating/divesting from non-core and non-performing assets (similar to Tri-Ocean Energy)?’ the national gas grid and contributing positively to the company’s cash flows. We have a Buy rating on EK Holding...... (USD) VALUATION & RISKS Valuation Statistics 2015a 2016e 2017e 2018e We use a sum of the parts (SOTP) valuation, based predominantly on discounted cash flow (DCF) methodology, EPS 0.04 0.06 0.07 0.08 3. Gas supplies have been relatively robust during 1H16 at Alexfert. Do you expect these levels to play out in 2H16? Or do you expect summer months to hinder operating to account for different risk profiles of EKH’s subsidiaries. Our exercise yields a fair value of USD0.80/share. The DPS 0.03 0.03 0.04 0.05 rates? fertilisers and chemicals segment accounts for 53% of our valuation, led by Sprea (26%), Alexfert (21%) and BVPS 0.51 0.53 0.57 0.61 ...... Egypt Hydrocarbon Company (EHC, 6%). The Energy business accounts for only 29% of our valuation, led by the downstream energy distributor NatEnergy (27%) and the Egyptian Tanker Company (ETC, 2%). Holding level cash and other small non-core assets represent 17% of our valuation. On the downside, we see risks from i) continued P/E (x) 13.27 7.93 6.75 5.86 4. How will the company capitalise on energy deregulation in Egypt? Does Natenergy plan on renegotiating its electricity prices with industrial companies? weak trends for fertilisers prices, and ii) higher-than-expected gas prices in Egypt, and iii) weaker gas supplies, but we Dividend Yield 5.3% 6.4% 8.5% 10.6% ...... believe risks are more than priced in by the market at current levels. P/BV (x) 0.9 0.9 0.8 0.8 FCF Yield 21.0% 1.5% -1.2% 5.7% 5. What is the latest on the arbitration case raised by Bawabat Al Kuwait against the Egyptian Government? Are there any indications on the settlement structure? EV / EBITDA (x) 4.6 4.9 4.3 3.7 ......

Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth -52.4% -3.8% 24.5% 11.7% Financial Statements - December Year End (USD mn) EBITDA Margin 23.2% 28.7% 30.1% 30.7% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 12.1% 19.7% 22.3% 23.9% Current Assets 814 624 617 632 Effective Tax Rate -10.0% -19.6% -19.2% -19.4% Net Fixed Assets 361 278 326 353 Intangibles & Others 385 358 358 358 ROAE 6.7% 11.4% 12.8% 13.7% Total Assets 1,560 1,260 1,301 1,343 ROAIC 4.3% 6.3% 9.5% 10.8% Current Liabilities (Including Debt) 610 315 343 365 DPO 70.6% 50.6% 57.4% 62.4% Long-Term Liabilities (Including Debt) 158 131 94 61 Total Net Worth 522 539 579 621 Net Debt (Cash) / Equity (x) (0.03) (0.24) (0.22) (0.24) Minority Interest 270 276 285 296 Net Debt (Cash) / EBITDA (x) (0.18) (1.38) (1.06) (1.09) Total Equity & Liabilities 1,560 1,260 1,301 1,343 Net Debt (14) (129) (130) (152) Company and Stock Data Price (USD) 0.47 on 21 August 2016 Income Statement Revenue 338 325 405 452 Bloomberg / Reuters EKHO EY / EKHO.CA (mn) (mn) EBITDA 78 93 122 139 MKT Cap / Shares USD481 / 1,024 EBIT 41 64 90 108 3M ADVT (mn) USD0.3 EBT 55 90 117 137 Float 43% Net Income 36 61 71 82 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations 98 60 97 110 National Al Khair 14% CF from Investments (55) 72 (79) (58) Sahel Company for Inv. and Dev. 5% CF from Finance & Non Operating CF (18) (168) (55) (65)

Source: EK Holding, EFG Hermes estimates

Ahmed Hazem Maher INSIGHTS INTO THE NEW REALITY [email protected] 24 25 Share Price Performance Relative to HFI (VWAP) (Rebased) ELSEWEDY ELECTRIC FAIR VALUE EGP57.30 RATING BUY www.elsewedyelectric.com 55.0 Elsewedy Electric (EGP) HFI (VWAP)

50.0 EGYPT

45.0 Industrials INVESTMENT THESIS 40.0 With an annual cable capacity of c286,200 tonnes by end-2015, Elsewedy Electric is a global power components manufacturer and integrated energy solutions provider selling to Africa (59% of 2015 revenue), GCC and Levant 35.0 (36%) and Europe (5%). Elsewedy’s diversified business model (wire& cable 52% of 2015’s gross profit, turnkey 33%, 30.0 QUESTIONS electrical products 16%) helped the company to partly weather political instability/lower demand in some markets on the operational level. With a focus on power generation projects and ongoing expansion in Egypt’s power capacity, 25.0 turnkey projects backlog expanded significantly over the past two years. Major turnkey projects include: i) Egypt’s fast track project (USD706 million, 2015-16), ii) Egypt’s Beni Suef plant (EUR785 million, 2016-18), and iii) Angola fast 1. The expansion in Egypt’s power capacity has been driving turnkey backlog and revenue growth, what are the normalised levels as expansion pace in Egypt slows down? track project (USD484.5 million, 2016). GCC again elevated cables volume in 2015, this will likely subside in 2016 ...... but GP per tonne should recover on a more favourable sales mix. Electrical products backlogs (+4x meters, +30% 21 May 16 21 Feb 16 21 Nov 15 21 Aug 16 21 Aug 15 transformers) would boost double-digit growth in segment’s 2016 GP. 2. What is the progress of signed MOUs in the turnkey projects segment?

VALUATION & RISKS ...... (EGP) We value Elsewedy using a sum-of-the-parts methodology, reaching a fair value of EGP57.3/share. The wire and cable Valuation Statistics 2015a 2016e 2017e 2018e segment contributes 52% of our fair value, turnkey projects 26%, and electrical products 22%. Catalysts to our EPS 5.24 7.72 7.07 7.00 3. The company benefited from the EGP devaluation that took place earlier in 2016, what is the impact of further EGP devaluation? forecasts include: i) sustained additions to turnkey projects backlog, ii) better-than expected cable demand in the GCC DPS 3.00 4.00 4.00 4.00 ...... and faster acceleration in Egypt, and iii) entry into large build-operate-transfer (BOT) or independent power producer BVPS 24.74 28.46 31.53 34.53 (IPP) projects. Downside risks are: i) delays in turnkey deliveries or demand slowdown in main markets, ii) receivables collection, and iii) earnings quality (reporting of one-offs). 4. What is the impact of lower GCC spending on 2016 cables volume? P/E (x) 9.62 6.53 7.14 7.20 ...... Dividend Yield 6.0% 7.9% 7.9% 7.9% P/BV (x) 2.0 1.8 1.6 1.5 5. What is your dividend policy for 2016-17? FCF Yield 5.3% 14.7% 10.7% 13.5% ...... EV / EBITDA (x) 5.3 4.2 4.5 4.6

Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth 20.9% 25.2% 3.8% 1.5% Financial Statements - December Year End (EGP mn) EBITDA Margin 13.4% 13.3% 12.0% 11.7% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 11.7% 11.9% 10.5% 10.1% Current Assets 17,378 15,063 14,337 13,585 Effective Tax Rate -23.8% -23.0% -23.0% -23.0% Net Fixed Assets 3,193 3,254 3,321 3,389 Intangibles & Others 203 209 215 222 ROAE 22.0% 29.0% 23.6% 21.2% Total Assets 20,775 18,525 17,872 17,195 ROAIC 21.8% 27.5% 24.1% 22.4% Current Liabilities (Including Debt) 14,087 10,571 9,137 7,692 DPO 57.3% 51.8% 56.6% 57.1% Long-Term Liabilities (Including Debt) 823 1,207 1,257 1,307 Total Net Worth 5,527 6,359 7,044 7,715 Net Debt (Cash) / Equity (x) 0.50 0.34 0.29 0.20 Minority Interest 338 389 435 481 Net Debt (Cash) / EBITDA (x) 1.06 0.68 0.67 0.52 Total Equity & Liabilities 20,775 18,525 17,872 17,195 Net Debt 2,934 2,319 2,144 1,658 Company and Stock Data Income Statement Price (EGP) 50.42 on 21 August 2016 Revenue 20,572 25,745 26,721 27,121 Bloomberg / Reuters SWDY EY / SWDY.CA EBITDA 2,761 3,425 3,205 3,167 MKT Cap (mn) / Shares (mn) EGP11,265 / 223 EBIT 2,408 3,061 2,809 2,735 3M ADVT (mn) USD0.9 EBT 2,204 2,635 2,411 2,389 Float 28% Net Income 1,245 1,826 1,671 1,656 Foreign Ownership Limit No Limit Appropriations* (75) (100) (92) (91) Net Attributable Income 1,170 1,726 1,579 1,565 Major Shareholders Elsewedy family 72% Cash Flow Statement CF from Operations 1,206 2,285 1,843 2,136 CF from Investments (505) (424) (463) (500) CF from Finance & Non Operating CF 1,523 (3,041) (1,817) (2,146) *Appropriations are based on our estimates Wafaa Baddour, CFA Source: Elsewedy Electric, EFG Hermes estimates INSIGHTS INTO THE NEW REALITY [email protected] 26 27 Share Price Performance Relative to HFI (VWAP) (Rebased) EZZ STEEL FAIR VALUE EGP12.00 RATING BUY www.ezzsteel.com Ezz Steel (EGP) HFI (VWAP) 10.0 9.5 EGYPT 9.0 Materials 8.5 INVESTMENT THESIS 8.0 Ezz Steel [ESRS.CA] is the largest steel manufacturer in Egypt, with a combined steel capacity of 5.8 mtpa of finished 7.5 steel and a c58% market share. Ezz steel operates three main subsidiaries i) Ezz Al Dekheila (EZDK - 55% owned), ii) Ezz Steel/Ezz Rolling Mills (ESR/ERM - 100% owned), and ii) Ezz Flat Steel (EFS - 64% effectively owned). EZDK, a 7.0 QUESTIONS listed subsidiary under [IRAX.CA], with a capacity of 3 mtpa (2 mtpa of long + 1 mtpa of flat steel) is a DRI-integrated 6.5 producer, hence, enjoys a significant cost advantage against local scrap-based producers and imported rebar. We 6.0 expect the DRI-based model will remain favourable to scrap even with the current weak spreads and high energy costs in Egypt. The company plans to replicate the EZDK’s DRI integrated model at the other subsidiaries (EFS and ESR/ERM) 1. Does the company have plans to reduce its exposure to FC-denominated debt? through a new 1.85mtpa DRI plant. The new plant is now onstream and will provide for 80% of ESR/ERM and EFS’s ...... DRI needs. This should improve the group’s overall margins significantly, in our view. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. What is the current ratio of sourcing FX between the black market and the official exchange? VALUATION & RISKS We value Ezz Steel using a discounted cash flow (DCF) methodology, which yields a fair value (FV) of EGP12.0/share...... (EGP) We apply a hefty 21.5% cost of equity for EGP-denominated cash flows in Egypt, given the high operational risks Valuation Statistics 2015a 2016e 2017e 2018e on weak gas suplies. Our valuation is highly sensitive to the utilisation rates at the company’s DRI plant, which is a EPS (0.77) (1.05) 1.18 1.70 3. Media sources have noted that the decision to cut natural gas price to USD4.5/mmbtu would come in effect by September 2016. Is the company expecting this decision to key downside risk to our base case scenario. Our DCF valuation implies an EV/EBITDA of 6.3x in 2017, as well as EV/ DPS 0.00 0.00 0.00 1.00 be implemented, and has there been any other indication from the government regarding this? tonne of cUSD424. BVPS 6.07 5.02 6.20 11.77 ......

P/E (x) N/M N/M 7.05 4.88 4. What is the current status of gas supply to the company’s DRI facilities? What level of gas supply does the company expect will materialise during 2016 and 2017? Dividend Yield 0.0% 0.0% 0.0% 12.1% ...... P/BV (x) 1.4 1.7 1.3 0.7 FCF Yield 24.7% 5.1% 46.0% 64.6% 5. What is the company’s view of the global imbalances faced in the steel market? How are Egyptian producers reacting to the weak steel price environment and its impact EV / EBITDA (x) 20.0 12.5 5.8 5.0 on steel imports into Egypt? ...... Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth -14.2% 19.2% 25.6% 7.7% Financial Statements - December Year End (EGP mn) EBITDA Margin 6.1% 8.2% 14.1% 15.2% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 2.1% 4.4% 11.0% 12.2% Current Assets 11,626 11,591 11,955 12,090 Effective Tax Rate N/M N/M -27.8% -26.2% Net Fixed Assets 11,211 15,776 15,264 14,769 Intangibles & Others 5,399 490 490 490 ROAE -8.3% -13.1% 14.2% 17.0% Total Assets 28,236 27,857 27,710 27,349 ROAIC 2.9% 4.3% 12.5% 14.6% Current Liabilities (Including Debt) 15,436 16,943 16,232 15,216 DPO 0.0% 0.0% 0.0% 58.8% Long-Term Liabilities (Including Debt) 8,018 7,003 6,393 5,738 Total Net Worth 3,298 2,728 3,367 4,345 Net Debt (Cash) / Equity (x) 2.68 3.64 2.61 1.83 Minority Interest 1,484 1,184 1,718 2,050 Net Debt (Cash) / EBITDA (x) 12.64 8.73 3.77 2.88 Total Equity & Liabilities 28,236 27,857 27,710 27,349 Net Debt 12,805 14,222 13,275 11,728 Company and Stock Data Price (EGP) 8.29 on 21 August 2016 Income Statement Revenue 16,641 19,841 24,919 26,849 Bloomberg / Reuters ESRS EY / ESRS.CA (mn) (mn) EBITDA 1,013 1,628 3,517 4,073 MKT Cap / Shares EGP4,504 / 543 EBIT 343 870 2,731 3,266 3M ADVT (mn) USD1.8 EBT (782) (764) 1,625 2,338 Float 34% Net Income (418) (570) 639 978 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations 2,843 627 2,322 3,196 Ezz Industries 66% CF from Investments (1,730) (397) (249) (285) CF from Finance & Non Operating CF 2,755 (30) (3,085) (3,302)

Source: Ezz Steel, EFG Hermes estimates

Ahmed Hazem Maher INSIGHTS INTO THE NEW REALITY [email protected] 28 29 Share Price Performance Relative to HFI (VWAP) (Rebased) GB AUTO FAIR VALUE EGP3.80 RATING BUY www.ghabbourauto.com GB Auto (EGP) HFI (VWAP) 3.5 EGYPT 3.3 3.1 2.9 Consumer Discretionary INVESTMENT THESIS 2.7 GB Auto is Egypt’s exclusive agent of: i) Hyundai, Geely, Mazda & Chery passenger cars (largest player with c27% market 2.5 share in 2015, 49% of 2015 proportionate revenue), and ii) Bajaj two- and three-wheelers (16%). The company also: 2.3 i) distributes Hyundai cars in Iraq (5%) through a 50%-owned JV, ii) has an Egypt-based commercial vehicle business 2.1 QUESTIONS (10%) under which it assembles Mitsubishi and Volvo trucks and buses, and produces trailers as well as buses under a 1.9 JV with Brazil’s Marcopolo (export-focused), among other things, iii) distributes several tire brands in Egypt, Iraq, Libya, 1.7 Jordan & Algeria (3%), iv) owns Egypt’s largest after-sale service network (6%), and v) provides financing services (9%, leasing, micro- and consumer finance). GB Auto formed JVs in Algeria (54%-owned) and Libya (60%) to distribute 1. What is the outlook for Egypt’s passenger car market? Will volume momentum pick up? What is the outlook for GB Auto’s passenger car market share in Egypt, especially Geely cars, etc. but is struggling due to unrest & tough competition. Other new ventures include an Egypt used car with the launch of new models? business and vehicle lubricant distribution. GB Auto concluded an EGP960mn rights issue in 2Q2015 to build two- & 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 ...... three-wheeler assembly & tire manufacturing facilities (the latter not included in our numbers). We are Buyers as we like the company’s exposure to under-motorised markets as well as its diversification plans with focus on fast-growing, high-margin segments (after-sale, financing, etc.). The Egypt car business is performing strongly despite FX shortages 2. What is the company’s strategy in light of devaluation? How much room is there for further price increases? (EGP) and a weaker EGP due to pricing power, successful new model launches, etc. Also, current valuation is near record lows Valuation Statistics 2015a 2016e 2017e 2018e ...... with the stock trading below tangible book value. EPS 0.47 0.37 0.40 0.47 DPS 0.00 0.00 0.10 0.15 3. What has the planned EGP960mn rights issue been used on (investment cost, execution time-frame and target contribution to sales and earnings of new two- and three- VALUATION & RISKS BVPS 3.98 3.35 3.65 3.97 wheeler and tire projects)? We value GB Auto using a discounted cash flow methodology, yielding a fair value of EGP3.80/share. We assign no value to ex-Egypt operations (Iraq, Algeria & Libya) mainly due to unrest in those countries. Upside risks include: i) ...... strong demand and margin recovery at the Iraqi operation, ii) stronger-than-expected volume growth in Egypt’s car & P/E (x) 5.30 6.67 6.21 5.23 commercial vehicle markets, iii) better Egypt car margins on greater sales of CKD units, iv) fast and successful execution Dividend Yield 0.0% 0.0% 4.0% 6.1% 4. What is the outlook for GB Auto’s Iraqi business and other international operations? of plans for two- & three-wheeler assembly and tire manufacturing, v) expansion into new geographies (sub-Saharan P/BV (x) 0.6 0.7 0.7 0.6 ...... Africa, etc.), vi) further diversification into new, high margin segments, and viii) passage of new custom regulations favourable for local assemblers. Downside risks include: i) sharp EGP depreciation (c75% of CoGS in FC) without raising FCF Yield -27.6% -17.6% -13.4% -5.1% prices, ii) prolonged unrest in Iraq leading to sustained large losses, iii) OEM supply constraints that could hinder sales EV / EBITDA (x) 9.0 6.1 5.3 4.4 volumes, iv) drop in Egypt’s car market volumes on FX shortages, etc., v) continued uptick in debt and working capital investments, and vii) unfavourable regulations that could hurt demand especially for three-wheelers. Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth -0.5% 18.8% 16.9% 19.0% Financial Statements - December Year End (EGP mn) EBITDA Margin 7.8% 9.6% 9.5% 9.5% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 5.7% 7.4% 7.1% 7.1% Current Assets 7,274 9,031 9,491 10,494 Effective Tax Rate -19.2% -26.0% -22.5% -22.5% Net Fixed Assets 3,660 4,778 6,019 7,074 Intangibles & Others 864 864 864 864 ROAE 16.0% 12.6% 12.3% 13.3% Total Assets 11,798 14,673 16,374 18,432 ROAIC 9.1% 10.7% 10.0% 10.6% Current Liabilities (Including Debt) 6,255 8,340 10,258 12,504 DPO 0.0% 0.0% 25.1% 31.7% Long-Term Liabilities (Including Debt) 1,600 2,073 1,526 979 Total Net Worth 3,334 3,667 3,993 4,346 Net Debt (Cash) / Equity (x) 1.11 1.42 1.58 1.69 Minority Interest 609 592 597 603 Net Debt (Cash) / EBITDA (x) 4.24 4.04 4.21 4.07 Total Equity & Liabilities 11,798 14,673 16,374 18,432 Net Debt 4,045 5,651 6,805 7,873 Company and Stock Data Price (EGP) 2.47 on 21 August 2016 Income Statement Revenue 12,265 14,572 17,033 20,265 Bloomberg / Reuters AUTO EY / AUTO.CA (mn) (mn) EBITDA 953 1,397 1,615 1,933 MKT Cap / Shares EGP2,705 / 1,095 EBIT 699 1,078 1,210 1,449 3M ADVT (mn) USD0.4 EBT 237 477 630 749 Float 42% Net Income 233 370 483 575 Foreign Ownership Limit No Limit Appropriations - (37) (48) (57) Net Attributable Income 391 405 435 517 Major Shareholders Ghabbour Family 58% Cash Flow Statement CF from Operations 198 433 1,070 1,281 CF from Investments (1,244) (1,437) (1,645) (1,540) CF from Finance & Non Operating CF 1,057 1,384 43 79

Source: GB Auto, EFG Hermes estimates Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 30 31 Share Price Performance Relative to HFI (VWAP) (Rebased) GLOBAL TELECOM HOLDING FAIR VALUE USD2.93 RATING BUY www.gtelecom.com 2.0 Global Telecom Holding (GDR) (USD) HFI (VWAP) 1.9 1.8 EGYPT 1.7 1.6 1.5 Telecommunication Services INVESTMENT THESIS 1.4 1.3 GTH is one of the largest mobile operators in the MENA region by number of subscribers, with c86 million subscribers 1.2 as at end-2015. It now has operations in Algeria, Pakistan and Bangladesh. Throughout the past five years, GTH’s 1.1 Algerian operation, Djezzy, its main value driver and largest contributor to revenue and EBITDA, has faced significant 1.0 QUESTIONS pressure from the Algerian government: tax claims, regulatory hurdles, bans on transfer of hard currency abroad 0.9 0.8 and on import of equipment, etc. However, in April 2014, an amicable resolution to the dispute was reached, which 0.7 led to the Algerian government acquiring 51% of Djezzy following lengthy negotiations with GTH’s new parent company, Vimpelcom. GTH shareholders approved the sale in August 2014 and the deal closed in January 2015, 1. What is management’s outlook on the data opportunity in Algeria in light of the current challenging environment? Should we expect margin pressure to persist? but the closing of the transaction has not led to an upward re-rating of the stock. The outlook for Djezzy started ...... improving after the Algerian government granted it a 3G licence in October 2013, in addition to conditional approval 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 to import 3G equipment, Djezzy launched 3G services in July 2014. GTH is currently undergoing a transformation 2. Since Ooredoo’s revenue share surpassed Djezzy’s in 2Q16, how can the 4G launch help Djezzy regain its revenue share lead? How much is the 4G device penetration in programme aimed at turnging around the business by focusing on six strategic pillars, chief of which are: i) portfolio rationalisation and consolidation, ii) performance transformation, iii) structural improvements, and iv) new revenue the country? (USD) streams. The company announced recently it has agreed to merge its Pakistani unit with a smaller competitor, Warid, Valuation Statistics 2015a 2016e 2017e 2018e ...... in line with its stated strategy. EPS (0.14) 0.14 0.17 0.19 DPS 0.00 0.00 0.00 0.00 3. When will GTH receive dividends from Djezzy and why is the 2015 dividend so late? Since GTH needs to start paying interest to bondholders soon, where will it source the VALUATION & RISKS BVPS 0.33 0.47 0.65 0.84 necessary liquidity considering that the available cash on the holding company’s books is negligible? We value GTH based on a sum-of-the-parts discounted cash flow (DCF) methodology. Our DCF yields a fair value (FV) of USD2.93 per GDR / EGP5.20 per share. Djezzy contributes 35% of the total valuation, wihle Mobilink (Pakistan) ...... P/E (x) N/M 12.00 10.11 9.15 contributes 41% of the valuation. We have a Buy rating on the stock as GTH currently trades at a significant discount Dividend Yield 0.0% 0.0% 0.0% 0.0% to peers, following the completion of the Algerian transaction. Moreover, we expect better operational and financial 4. What are the latest updates on the operating environment in Bangladesh? Is the Robi-Airtel merger finalised and would Banglalink be part of a further consolidation in P/BV (x) 5.3 3.7 2.7 2.1 results starting mid-2016, which should reflect positively on stock performance. The main catalysts, in our view, is the market? Djezzy starting to deliver stronger results in 2016. However, Djezzy’s numbers are likely to be somewhat pressured FCF Yield -63.2% 16.1% 21.9% 24.9% ...... until then due to the sharp devaluation of the local currency against the USD as of late-2014. The main downside risks EV / EBITDA (x) 4.2 3.9 3.9 3.8 include: i) more aggressive competition across all operations, ii) potential regulatory hurdles, and iii) stronger-than- EV / Sub. (USD) 51 48 45 44 expected devaluation of the DZD versus the USD. 5. When will the Pakistan merger be completed and what value creation does management see besides the mentioned synergies in opex and capex? Key Forecast Drivers 2015a 2016e 2017e 2018e ...... Total Subscribers (mn) 86 91 95 99 (USD mn) Financial Statements - December Year End Revenue Growth -13.1% -4.5% 1.5% 2.9% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 44.8% 47.2% 46.5% 46.3% Current Assets 1,160 1,057 1,121 1,258 EBIT Margin 19.8% 26.3% 26.4% 25.9% Net Fixed Assets 1,980 2,068 2,115 2,116 Effective Tax Rate -90.2% -37.5% -36.4% -36.0% Intangibles & Others 1,618 1,544 1,468 1,391 ROAE 21.0% 36.2% 30.8% 25.7% Total Assets 4,758 4,670 4,703 4,765 ROAIC 27.5% 22.4% 22.7% 23.5% Current Liabilities (Including Debt) 1,942 1,706 1,733 2,119 DPO 0.0% 0.0% 0.0% 0.0% Long-Term Liabilities (Including Debt) 2,401 2,381 2,191 1,650 Net Debt (Cash) / Equity (x) 4.77 3.14 2.02 1.28 Total Net Worth 344 496 677 876 Minority Interest 71 87 103 120 Net Debt (Cash) / EBITDA (x) 1.53 1.40 1.21 0.95 Total Equity & Liabilities 4,758 4,670 4,703 4,765 Net Debt 1,982 1,831 1,578 1,274 Company and Stock Data Price (USD) 1.74 on 21 August 2016 Income Statement Revenue 2,894 2,766 2,806 2,888 Bloomberg / Reuters GLTD LI / GLTDQ.L (mn) (mn) EBITDA 1,298 1,304 1,304 1,337 MKT Cap / Shares USD1,826 / 1,049 EBIT 573 727 739 749 3M ADVT (mn) USD0.7 EBT 81 498 540 574 Float 48% Net Income (143) 152 181 199 Foreign Ownership Limit N/A

Cash Flow Statement Major Shareholders CF from Operations (208) 1,094 1,112 1,122 VimpelCom 52% CF from Investments (823) (592) (534) (512) CF from Finance & Non Operating CF (1,314) (609) (515) (481)

Source: Global Telecom Holding, EFG Hermes estimates

Omar Maher Karim Riad INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 32 33 Share Price Performance Relative to HFI (VWAP) (Rebased) HOUSING AND DEVELOPMENT BANK FAIR VALUE EGP28.47 RATING BUY www.hdb-egy.com 28.0 Housing and Dev. Bank (EGP) HFI (VWAP) 26.0 EGYPT 24.0 22.0 Financials INVESTMENT THESIS 20.0 Housing and Development Bank (HDB) was established as an arm of the Ministry of Housing in the 1970s, to support 18.0 and develop its real estate projects. While it has shifted its focus towards commercial banking since 2003, it still owns 16.0 land that it develops. HDB’s main banking franchise is the retail segment, with 58% of its loan book being mortgages QUESTIONS and personal loans. HDB also has a 36.9% direct take in Hyde Park, a real estate developer in New Cairo targeting 14.0 high-end households. The bank on a stand-alone basis has lower profitability than peers, but management remains 12.0 focused on restructuring and on increasing ROE. 1. HDB changed last year its accounting methodology on Hyde Park from fully consolidated to equity method. Is the change in accounting methodology a potential first step VALUATION & RISKS for a possible spin-off of the real estate arm? We use a sum of the parts valuation methodology, consisting of: i) the bank, ii) HDB’s 36.9% stake in Hyde Park 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 ...... and iii) land and real estate projects in progress owned by HDB. In our view, the share price does not fully reflect the value of the commercial and real estate business of HDB. Investment risks include: i) negative political developments, which could drive lower-than-expected asset growth, ii) strong further devaluation of the EGP, which could impact 2. Can you give us your view on the recent Central bank of Egypt (CBE)’s directive to increase the share of SME lending to 20% in 2020? Do you see this target as achievable (EGP) negatively customers’ paying ability and drive higher NPLs, and iii) decline in prices of land bank and slower sales of Valuation Statistics 2015a 2016e 2017e 2018e for HDB? What is the current share of SME loans in your loan portfolio? real estate units. EPS 3.76 4.63 5.17 5.51 ...... DPS 1.50 1.50 1.55 1.60 BVPS 22.23 24.70 27.48 30.48 3. Can you shed some color on HDB’s participation in the CBE’s mortgage finance initiative for middle & low income housing? Has the bank already reached the EGP2 billion P/E (x) 4.5 3.7 3.3 3.1 that was allocated to HDB by the CBE? Dividend Yield 8.8% 8.8% 9.1% 9.4% ...... P/BV (x) 0.8 0.7 0.6 0.6 Mkt Cap / Deposits 18.6% 17.0% 15.6% 14.5% 4. What is the bank’s strategy vis-à-vis its numerous subsidiaries and associates? Is there any divestment or development plans ahead for these entities? ...... ROAE 17.8% 19.7% 19.8% 19.0% ROAA 1.9% 2.2% 2.3% 2.4% 5. The real estate sector is currently booming in Egypt. What is your view on current market dynamics? How do you intend to benefit from the market’s high price and Key Forecast Drivers 2015a 2016e 2017e 2018e increasing demand? Any trigger for a deceleration in your view? Growth in Loans 15.2% 10.5% 10.3% 10.1% ...... (EGP mn) Financial Statements - December Year End Growth in Deposits 21.1% 9.0% 9.0% 8.0% Balance Sheet 2015a 2016e 2017e 2018e Loans / Deposits 64.8% 65.7% 66.5% 67.8% 6. HDB recently opened nine new branches in Egypt. Can you elaborate on the branch network expansion strategy of HDB going forward? Cash & Central Bank 1,913 1,894 1,926 1,783 Growth in Net Interest Inc. 103.2% 14.7% 1.8% 3.7% ...... Interbank Assets 6,639 5,050 5,504 5,201 Growth in Non-Interest Inc. 15.7% 7.1% 17.0% 7.4% Loans (Net) 7,506 8,295 9,151 10,073 Net Interest Spread 2.34% 2.50% 2.60% 2.60% 7. How sustainable is the free funding you get from NUCA linked to land allocations to Egyptians? Can you quantify what is the contribution of these free funds to your net Financial Investments 7,943 8,359 8,942 9,488 Net Interest Margin 5.06% 5.36% 5.27% 5.14% Fixed & Other Assets 3,286 3,435 3,486 3,424 Cost / Income 37.5% 38.9% 39.8% 41.3% interest income as you can invest these free funds in T-Bills? Total Assets 27,287 27,032 29,010 29,970 ...... Due to Banks 117 151 165 178 NPL Ratio 7.5% 7.0% 6.8% 7.0% Customer Deposits 11,581 12,624 13,760 14,861 NPL Coverage Ratio 114.6% 132.1% 140.0% 135.9% Bonds & Long-Term Loans 1,734 1,262 1,307 1,337 Capital Adequacy Ratio 16.6% 17.7% 18.8% 20.2% Dividend Payable & Other Liabilities 10,990 9,782 10,172 9,564 Total Liabilities 24,422 23,819 25,404 25,941 Company and Stock Data Minority Interest 52 89 129 173 Price (EGP) 17.00 on 21 August 2016 Shareholders' Equity & Other Capital 2,813 3,124 3,477 3,855 Total Shareholders' Equity & Liabilities 27,287 27,032 29,010 29,970 Bloomberg / Reuters HDBK EY / HDBK.CA MKT Cap (mn) / Shares (mn) EGP2,151 / 127 Income Statement 3M ADVT (mn) USD0.1 Net Interest Income 1,054 1,209 1,231 1,276 Float 22% Non-Interest Income 834 893 1,045 1,122 Total Banking Income 1,888 2,102 2,275 2,398 Foreign Ownership Limit No Limit Operating Expense (708) (817) (905) (991) Major Shareholders Total Provisions (387) (255) (222) (184) Other Income/Expense - - - - New Urban Communities Authority 30% Income before Taxes 793 1,029 1,149 1,224 Egyptian Endowment Authority 11% Net Income 575 761 851 906 Minority Interest & Profit Sharing (100) (175) (196) (209) Net Attributable Income 475 586 655 697

Source: Housing and Development Bank, EFG Hermes estimates Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 34 35 Share Price Performance Relative to HFI (VWAP) (Rebased) INTEGRATED DIAGNOSTICS HOLDINGS | IDH FAIR VALUE USD5.40 RATING BUY www.idhcorp.com 7.0 Share Price Performance 6.5 EGYPT 6.0 5.5 Healthcare INVESTMENT THESIS 5.0 Integrated Diagnostics Holding (IDH) , via its subsidiaries’ 30+ years of experience, is the largest fully integrated private 4.5 diagnostics service provider in Egypt, with a 55% share of revenue from private chain laboratories in 2013 (c22% of 4.0 total private). IDH operates through two main subsidiaries (Al Mokhtabar 99.9%-owned and Al Borg 99.3%) in three QUESTIONS countries under four main brands: i) Al Borg and Al Mokhtabar in Egypt (90% of 2015 revenue), ii) Ultralab and Al 3.5 Mokhtabar in Sudan (3%), and iii) Biolab in Jordan (7%). IDH catered for c5.8 million patients in 2015 (contract clients 3.0 accounted for 61% of revenue, walk-in 39%) through the largest and most widespread branch network in Egypt (278 branches in 2015, doubled in six years – in addition to central labs) and a strong presence in Sudan (24 branches) 1. Total test volume has been flattish recently, what is the reason and is this a sustainable trend? and Jordan (12 branches). IDH pursued an IPO in 2Q2015 on the standard segment of the London Stock Exchange ...... (LSE), via the sale of existing shares (43.5% of the total, valued at USD290 million or USD4.45/share, in addition to 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 6.5% over-allotment option). 2. Has the increase in test prices affected your market share in the walk-in segment, given your premium pricing versus peers?

VALUATION & RISKS ...... (USD) We value IDH at USD5.40/share and assign a Buy rating to the stock. We expect consolidated recurring earnings Valuation Statistics 2015a 2016e 2017e 2018e growth to remain strong at 20%+ CAGR in 2016-20, backed by branch additions in underpenetrated markets with EPS 1.82 2.14 2.61 3.23 3. The sales mix has been in favor of contract sales, do you expect this trend to sustain and what is its impact on margins? growing needs for healthcare services as well as a supportive regulatory framework in Egypt. Key risks are slow DPS 0.47 1.07 2.08 2.90 ...... recovery of volume growth in the short term/ loss of market share and inability to defend margins in the face of a shift BVPS 12.64 14.74 16.27 17.42 to low-margin contract sales. Backed by a strong balance sheet and low capital intensity, IDH plans to expand in new medical services in Egypt such as radiology and in-vitro fertilisation and may seek opportunities outside Egypt via M&A 4. Can you pass on further EGP devaluation without affecting your market share and margins? and JVs (preferably with local partners), to replicate Egypt’s business model. However, we believe Egypt will remain the P/E (x) 17.75 15.06 12.39 10.00 ...... key revenue driver in the short to medium term. Dividend Yield 1.4% 3.3% 6.5% 9.0% P/BV (x) 2.6 2.2 2.0 1.9 5. What is your plan to utilise the cash balance, what is the progress in acquisition and/or expansion activities? FCF Yield 5.5% 6.8% 9.0% 11.0% ...... EV / EBITDA (x) 10.5 9.1 7.7 6.4 6. What is your dividend policy for 2015? Key Forecast Drivers 2015a 2016e 2017e 2018e ...... Revenue Growth 18.0% 15.3% 17.7% 19.7% Financial Statements - December Year End (USD mn) EBITDA Margin 42.8% 42.8% 43.0% 43.5% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 39.3% 39.7% 40.4% 41.2% Current Assets 539 823 1,125 1,383 Effective Tax Rate -43.5% -29.0% -29.0% -29.0% Net Fixed Assets 338 330 323 315 Intangibles & Others 1,606 1,606 1,606 1,606 ROAE 7.9% 15.7% 16.8% 19.2% Total Assets 2,483 2,759 3,054 3,305 ROAIC 17.5% 19.8% 23.4% 29.4% Current Liabilities (Including Debt) 352 302 355 423 DPO 25.7% 50.0% 80.0% 90.0% Long-Term Liabilities (Including Debt) 189 194 200 205 Total Net Worth 1,896 2,211 2,441 2,613 Net Debt (Cash) / Equity (x) (0.16) (0.25) (0.34) (0.40) Minority Interest 47 52 57 63 Net Debt (Cash) / EBITDA (x) (0.72) (1.14) (1.43) (1.50) Total Equity & Liabilities 2,483 2,759 3,054 3,305 Net Debt (313) (569) (850) (1,080) Company and Stock Data Price (USD) 3.64 on 21 August 2016 Income Statement Revenue 1,015 1,170 1,377 1,649 Bloomberg / Reuters IDHC LN / IDHC.L (mn) (mn) EBITDA 435 501 593 718 MKT Cap / Shares USD545 / 150 EBIT 399 465 556 680 3M ADVT (mn) USD0.2 EBT 274 467 566 698 Float 54% Net Income 145 321 391 484 Foreign Ownership Limit No limit

Cash Flow Statement Major Shareholders CF from Operations 321 357 467 561 Hena Holdings 25% CF from Investments (53) (28) (30) (30) Actis 21% CF from Finance & Non Operating CF (132) (87) (170) (314)

Source: Integrated Diagnostics Holdings (IDH), EFG Hermes estimates

Wafaa Baddour, CFA INSIGHTS INTO THE NEW REALITY [email protected] 36 37 Share Price Performance Relative to HFI (VWAP) (Rebased) JUHAYNA FAIR VALUE EGP7.00 RATING BUY www.juhayna.com 9.4 Juhayna (EGP) HFI (VWAP) 8.7 EGYPT 8.0 Consumer Staples 7.3 INVESTMENT THESIS Established in 1983, Juhayna is Egypt’s leading dairy and juice producer, with a 63% market share in plain milk, 30% 6.6 in spoonable yogurt (35% drinkable) and 18% in juice. Dairy is the largest contributor to revenue (52% in 2015), 5.9 followed by yoghurt (25%) and juice (20%). The company has seven production facilities (two for dairy, two for yogurt, QUESTIONS one for juice and two for concentrates). Juhayna’s competitive edge lies in its strong brand equity and unmatched 5.2 distribution network (30 distribution centres across Egypt and a fleet of 1,000+ vehicles, covering c50k retail outlets in 26 4.5 governorates). The company has been working to backward-integrate its business (mainly establishing agricultural and dairy farms to have some raw milk self-sufficiency, c4k milking cows by end-2016), which should bode well for medium- 1. How much of the company’s FX needs is being sourced from the parallel market? What is the company’s strategy in light of devaluation? How easy is it to raise product term margins. Juhayna also completed a new yogurt plant that should nearly double capacity (700 tons/day). We expect prices, and to what extent can consumers accept price increases? the company to continue to benefit from: i) its leading position in a fast-growing market with immense potential, driven 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 ...... by conversion from loose to packaged milk (only 40% of consumption), ii) Egypt’s low per-capita consumption (22kg for dairy, 2kg for yogurt and 3kg for juice), and iii) a relatively flexible pricing environment, with ability to partly pass on rising costs to consumers. We have a Buy rating on strong improvement in yogurt and juice volumes after a lackluster 2013-14 2. What initiatives has the company been taking to improve yoghurt and juice volumes? (EGP) on better market growth and share gains. The stock is trading at a discount to global dairy peers. Valuation Statistics 2015a 2016e 2017e 2018e ...... EPS 0.32 0.18 0.31 0.42 VALUATION & RISKS DPS 0.15 0.10 0.15 0.20 3. How are the plans for dairy farming activities progressing, and what is the expected margin benefit? We value Juhayna using a discounted cash flow methodology, yielding a fair value of EGP7.00/share. Upside risks BVPS 2.38 2.47 2.63 2.86 ...... include: i) a faster-than-expected consumption shift to packaged products, ii) market share gains in core categories, iii) additional price increases for main products, iv) faster-than-expected execution of vertical integration plans, v) a value- accretive acquisition of a relevant business, and vi) successful rollout of the Arla JV (sales could reach cEGP1bn by 2020, P/E (x) 16.49 29.16 17.17 12.51 4. What is the rationale behind the Arla-Juhayna JV (ArJu), and how significant does management expect the business to be in the future? management targeting cheese at c20% of business). Downside risks include: i) rising raw material costs, ii) growing price Dividend Yield 2.8% 1.9% 2.8% 3.8% ...... elasticity of demand, iii) FX risk (c25% of cash costs in FC, raw milk is USD-linked), iv) weaker-than-expected volume P/BV (x) 2.2 2.1 2.0 1.8 growth due to competition (especially in juice and yogurt), v) slower-than-expected conversion to packaged products, vi) weaker FCF generation and increasing leverage if capex and working capital investments are high, vii) possible FCF Yield 2.6% -9.9% 3.7% 5.5% 5. How has the competitive landscape changed recently? What trends is the company seeing (size/price changes, market consolidation, etc.)? margin volatility as agriculture exposure grows, and as the Arla JV ramps up, viii) key person risk, especially given an EV / EBITDA (x) 7.6 8.9 6.5 5.4 ...... administrative decision to freeze the bank accounts of Juhayna’s founder and CEO that may be a short-term overhang, and ix) unfavourable impact from planned implementation of VAT (likely on some juice products only). Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth 14.9% 22.2% 15.6% 17.1% Financial Statements - December Year End (EGP mn) EBITDA Margin 20.7% 14.4% 17.0% 17.6% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 15.9% 9.8% 12.3% 13.1% Current Assets 1,641 1,577 1,938 2,391 Effective Tax Rate -37.8% -26.0% -25.0% -24.0% Net Fixed Assets 3,232 3,563 3,584 3,601 Intangibles & Others 122 127 127 127 ROAE 14.4% 7.8% 12.6% 16.0% Total Assets 4,995 5,268 5,649 6,120 ROAIC 14.7% 11.5% 15.0% 18.2% Current Liabilities (Including Debt) 1,491 1,921 2,299 2,703 DPO 46.7% 55.1% 48.7% 47.3% Long-Term Liabilities (Including Debt) 1,265 1,018 871 723 Total Net Worth 2,238 2,328 2,477 2,686 Net Debt (Cash) / Equity (x) 0.51 0.76 0.68 0.58 Minority Interest 1 1 3 7 Net Debt (Cash) / EBITDA (x) 1.29 2.35 1.66 1.27 Total Equity & Liabilities 4,995 5,268 5,649 6,120 Net Debt 1,135 1,759 1,683 1,562 Company and Stock Data Price (EGP) 5.29 on 21 August 2016 Income Statement Revenue 4,231 5,171 5,977 6,999 Bloomberg / Reuters JUFO EY / JUFO.CA (mn) (mn) EBITDA 877 747 1,016 1,232 MKT Cap / Shares EGP4,980 / 941 EBIT 673 505 733 914 3M ADVT (mn) USD0.3 EBT 450 293 452 608 Float 49% Net Income 280 216 337 458 Foreign Ownership Limit No Limit Appropriations (43) (32) (47) (59) Net Attributable Income 302 171 290 398 Major Shareholders Pharon Investment Limited 51% Cash Flow Statement CF from Operations 593 307 755 904 CF from Investments (280) (573) (304) (336) CF from Finance & Non Operating CF 62 (240) (265) (319)

Source: Juhayna Food Industries, EFG Hermes estimates Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 38 39 Share Price Performance Relative to HFI (VWAP) (Rebased) LECICO FAIR VALUE EGP5.00 RATING NEUTRAL www.lecicoegypt.com 6.8 Lecico (EGP) HFI (VWAP) 6.2 EGYPT 5.6 5.0 Industrials INVESTMENT THESIS 4.4 Lecico is a leading ceramic tile (37.4 million square metre (sqm) capacity) and sanitary ware (6.5 million pieces) 3.8 manufacturer operating in Egypt and Lebanon. Exports represent c20% of Lecico’s tile volumes (to the Middle East) 3.2 and c55% of sanitary ware volumes, including sales to Original Equipment Manufacturer (OEM) clients. Lecico QUESTIONS expanded its tile capacity at Borg El Arab Plant by 6.4 million sqm per annum in May 2013, bringing the group’s 2.6 total capacity to 37.4 million sqm per annum. The plant has room for another expansion (of 6.4 million sqm of red 2.0 body tiles or 4.0 million sqm of glazed porcelain tiles). The government move to raise natural gas prices for ceramic manufacturers to USD7.0/mbtu in July 2014 weighed on Lecico’s margins and will decelerate its recovery story, in our 1. What is the outlook for demand for the remainder of the year and next year locally and for exports? view. We expect gradual improvement in margins starting 2016 on economies of scale and higher prices across all ...... segments, backed by gradual recovery in its key markets and well-diversified client base. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Are there any talks on reducing energy cost for some industries? VALUATION & RISKS We have a Neutral rating for Lecico and a fair value of EGP5.0/share. We value Lecico using a five-year discounted ...... (EGP) cash flow (DCF) methodology, applying a cost of equity of 17.5% and a WACC of 14.0%. Upside risks to our Valuation Statistics 2015a 2016e 2017e 2018e valuation lie in Lecico’s ability to: i) further raise prices and pass on higher energy costs, and ii) devaluation of the EGP EPS (0.81) (0.09) 0.26 0.54 given the large export exposure (c60% of SW volume, c23% of tile in 2014). Prolonged unrest key export areas mainly DPS 0.00 0.50 1.00 1.25 in Libya and political instability is key downside risks, in our view. BVPS 10.38 10.43 9.98 9.54

P/E (x) N/M N/M 9.90 4.79 Dividend Yield 0.0% 19.2% 38.5% 48.1% P/BV (x) 0.3 0.2 0.3 0.3 FCF Yield -25.5% 67.3% 36.4% 55.1% EV / EBITDA (x) 6.5 4.7 3.9 3.4

Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth -12.9% 4.1% 7.7% 8.4% Financial Statements - December Year End (EGP mn) EBITDA Margin 10.9% 14.5% 16.3% 17.3% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 3.4% 7.2% 9.2% 10.4% Current Assets 1,428 1,446 1,522 1,576 Effective Tax Rate N/M -15.0% -15.0% -15.0% Net Fixed Assets 691 654 629 614 Intangibles & Others 40 56 57 57 ROAE -1.4% -0.8% 2.6% 5.7% Total Assets 2,159 2,156 2,208 2,247 ROAIC 3.0% 6.4% 8.8% 10.5% Current Liabilities (Including Debt) 1,186 1,181 1,287 1,376 DPO 0.0% -576.5% 380.8% 230.2% Long-Term Liabilities (Including Debt) 136 130 112 95 Total Net Worth 831 834 799 763 Net Debt (Cash) / Equity (x) 0.90 0.75 0.85 0.93 Minority Interest 6 10 11 13 Net Debt (Cash) / EBITDA (x) 5.06 3.06 2.74 2.51 Total Equity & Liabilities 2,159 2,156 2,208 2,247 Net Debt 757 632 686 724 Company and Stock Data Price (EGP) 2.60 on 21 August 2016 Income Statement Revenue 1,371 1,426 1,537 1,665 Bloomberg / Reuters LCSW EY / LCSW.CA (mn) (mn) EBITDA 150 207 250 288 MKT Cap / Shares EGP208 / 80 EBIT 47 103 141 173 3M ADVT (mn) USD0 EBT (36) 33 70 102 Float 51% Net Income (34) 27 58 85 Foreign Ownership Limit No Limit Appropriations (31) (34) (37) (41) Net Attributable Income (65) (7) 21 43 Major Shareholders Intage Holding 39% Cash Flow Statement Concord International Investments 10% CF from Operations 19 218 161 214 CF from Investments (72) (78) (85) (100) CF from Finance & Non Operating CF (25) (134) (56) (91)

Source: Lecico, EFG Hermes estimates Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] 40 41 Share Price Performance Relative to HFI (VWAP) (Rebased) MADINET NASR HOUSING & DEVELOPMENT www.mnhd.net 18.0 Medinet Nasr Housing (EGP) HFI (VWAP)

16.0 EGYPT

14.0 Real Estate & Hospitality BUSINESS DESCIPTION 12.0 Madinet Nasr Housing & Development (MNHD) was founded by the government in 1959, partially privatised in 2006 and fully transitioned to the private sector via a public tender offer in 2007 through an unsolicited bid in the market. 10.0 MNHD has developed the majority of Nasr City district in the East of Cairo which covers over 40mn sqm with more 8.0 QUESTIONS than three million inhabitants. The company also operates two subsidiaries, Nasr Civil Works Company (51%-owned) and Nasr Utilities Company (98%-owned). MNHD offers exposure to the under penetrated middle and upper-middle 6.0 income segment in Egypt, through a dispute-free land bank. The company owns two main land plots: 1) Taj City (3.53mn sqm), the first phase of which, named Tag Sultan, marked the company’s successful migration to an off-plan 1. What tool is management using to address the rising concerns on affordability? sales model, with its delivery in 4Q15; and 2) KM45 (5.4mn sqm), the largest land plot in the company’s portfolio ...... and located just beside TMG’s Madinaty project. The company is co-developing a 103-feddan plot with Palm Hills 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 Development, under the name Capital Gardens. Two launches have been concluded in 4Q15 for phase one of the 2. Could you please shed more light on the planned launch at Sarai in 4Q16; expected size and target segment? project with presales totalling cEGP980mn through June 2016. The project is set to be developed over four phases, with the unit deliveries of the first phase scheduled to be completed before end of 2019...... Valuation Statistics (EGP) 2013a 2014a 2015a 1H16a (TTM) EPS 0.35 0.51 0.48 0.55 3. What is the plan regarding the remainder of the Taj City? INVESTMENT THESIS DPS 0.00 0.00 0.00 0.00 ...... MNHD is a play on land bank and a new management that has successfully managed to turnaround the company’s BVPS 1.16 1.51 1.93 1.99 strategy and story, although it may be argued that the company’s public sector background may still be hindering the pace of the transformation. Major milestones to date has been the change in the selling concept from land sales and 4. How do you assess your experience with the first co-development project, Capital Gardens? Should we expect the company to enter similar transactions in the near future? selling of completed units to developing residential communities and selling units off-plan. However, we believe the P/E (x) 42.8 29.2 31.4 27.2 ...... company still has considerable potential for change. Management has launched phase two of Tag Sultan, named the Dividend Yield 0.0% 0.0% 0.0% 0.0% T-Zone, last year, which together with a launch in Sarai should push sales above the EGP1bn mark in 2016. We think P/BV (x) 13.0 9.9 7.8 7.5 5. Any updates on the MoU signed with Al-Hokair Group for the retail complex? that the company’s current land bank (mm sqm) 9.3, being located in premium locations in the East of Cairo (an area that is currently enjoying increased demand), would allow the company to continue to leverage on the favourable FCF Yield 1.1% 1.6% -0.3% -1.7% ...... supply-demand demographics, particularly in the middle and upper middle income segments that the company is EV / EBITDA (x) 32.7 27.2 28.7 23.9 targeting.

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Revenue Growth N/A 3.5% 0.6% 30.3% Financial Statements - December Year End (EGP mn) EBITDA Margin 35.9% 39.5% 37.7% 38.0% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 35.9% 39.8% 37.0% 37.4% Short-term Rec.and Prepayments 869 911 2,122 2,289 Effective Tax Rate -24.4% -28.9% -20.6% -18.5% Development Properties (and Land) 382 514 773 1,049 Intangibles & Others 441 482 757 760 ROAE 27.6% 28.0% 25.8% 30.6% Total Assets 1,692 2,014 3,652 4,098 ROAIC 36.3% 36.0% 25.0% 30.4% Current Liabilities (Including Debt) 1,013 1,152 2,550 2,839 DPO 0.0% 0.0% 0.0% 0.0% Long-Term Liabilities (Including Debt) 43 38 69 193 Net Debt (Cash) / Equity (x) (0.15) (0.18) 0.00 0.15 Total Net Worth 580 758 964 995 Minority Interest 57 65 69 72 Net Debt (Cash) / EBITDA (x) (0.40) (0.52) 0.02 0.50 Total Equity & Liabilities 1,692 2,014 3,652 4,098 Net Debt (95) (149) 5 162 Company and Stock Data Price (EGP) 15.01 on 21 August 2016 Income Statement Bloomberg / Reuters MNHD EY / MNHD.CA Revenue 658 722 715 853 MKT Cap (mn) / Shares (mn) EGP7,505 / 500 EBITDA 237 285 269 324 3M ADVT (mn) USD1.9 EBIT 236 287 265 319 Float 47% EBT 239 292 309 361 Foreign Ownership Limit No Limit Net Income 176 203 239 300 Major Shareholders Cash Flow Statement Beltone Capital 32% CF from Operations 90 104 (5) (108) National Company for Developing and Buidling 15% CF from Investments (20) 4 (0) 53 CF from Finance & Non Operating CF (11) 13 2 10

Source: Madinet Nasr Housing & Development , EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 42 43 Share Price Performance Relative to HFI (VWAP) (Rebased) ORASCOM CONSTRUCTION LIMITED FAIR VALUE EGP61.09 RATING NEUTRAL www.orascom.com 120.0 Orascom Construction Limited (EGP) HFI (VWAP)

105.0 EGYPT

90.0 Industrials INVESTMENT THESIS 75.0 Orascom Construction (OC) has grown to be a leading global contractor, with over 60 years of experience in MENA markets and 160 years in the United States through its subsidiaries - Weitz and Contrack. The company, with a 60.0 backlog of USD6.1bn as of March 2016, has a wide variety of core competencies in executing large and complex 45.0 QUESTIONS infrastructure, industrial and commercial projects. Moreover, OC has consistently maintained its strong and well- established client base, comprising sovereign and blue-chip clients, with long-standing relationships. OC offers a 30.0 direct exposure to the growing infrastructure sector in the MENA region in general and in Egypt in particular, albeit not without its challenges, in a backdrop of lower government spending in Saudi Arabia and FX shortage in Egypt. 1. How do you see the evolution of future awards from Egypt over the coming few years, in light of the current difficulties in securing foreign currency? OC’s strong presence in the more developed US market brings in a much-needed balance to mitigate the MENA ...... risks, particularly those associated with the prolonged collection periods. OC has returned to profits in 1Q16, which 21 May 16 21 Aug 16 21 Nov 15 21 Feb 16 21 Aug 15 we expect the company would be able to maintain, with gross profit margins averaging 8.0% in 2016-19e and net 2. Update on the company’s Saudi operations (execution and receivables collection). income growing by a CAGR of 10.5% over the same period...... (EGP) VALUATION & RISKS Valuation Statistics 2013a 2016e 2017e 2018e Our fair value for OC of EGP61.1 per share is derived based on a ten-year discounted free cash flow (DCF) model. EPS (2.95) 0.75 0.68 0.84 3. Could you please provide us with an update on the operations of BESIX, in light of the margin pressure we saw in the recent years? Also, what are management’s plans We assume a terminal growth rate of 3% and WACC of 11%. Our valuation is driven by growth in contract awards, DPS 0.00 0.00 0.10 0.10 regarding the possible divestment of BESIX? margin improvement and better working capital assumptions. Downside risks to our valuation include: i) deteriorating BVPS 4.10 4.85 5.43 6.17 ...... economic conditions in Egypt, which might result in lower contract awards in the country, ii) lower oil prices that would result in a further slowdown in construction activity within the Kingdom, iii) lower-than-estimated contract awards in the US, and iv) slower-than-expected receivable collections, pressuring the company’s cash cycle. On the P/E (x) N/M 9.28 10.26 8.27 upside, we see some potential to our numbers including: i) execution of Egypt’s ambitious planned projects’ pipeline Dividend Yield 0.0% 0.0% 1.4% 1.4% that would result in more contracts for OC, ii) better-than-expected backlog mix more towards infrastructure and P/BV (x) 1.7 1.4 1.3 1.1 industrial projects in MENA, resulting in margins expansion, iii) better outlook for business in Saudi Arabia, and v) faster-than-expected improvement in the company’s cash collection process. FCF Yield 14.8% 11.6% 7.6% 8.5% EV / EBITDA (x) N/M 3.5 4.1 3.7

Key Forecast Drivers 2015a 2016e 2017e 2018e Backlog (USDmn) 6,671 6,165 5,950 5,077 Financial Statements - December Year End (EGP mn) Revenue Growth - 2.8% -3.8% 9.2% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin -7.8% 4.9% 4.4% 4.4% Accounts Receivable (Current) 1,195 1,178 1,097 1,233 EBIT Margin -9.2% 3.5% 2.9% 3.0% Long-term Investments 339 344 350 356 Effective Tax Rate N/M -30.0% -30.0% -28.0% Intangibles & Others 1,702 1,537 1,457 1,399 ROAE -62.1% 13.6% 11.2% 12.3% Total Assets 3,236 3,059 2,904 2,988 ROAIC -144.0% 20.9% 14.4% 15.4% Current Liabilities (Including Debt) 2,628 2,387 2,163 2,157 Long-Term Liabilities (Including Debt) 47 22 24 26 DPO 0.0% 0.0% 14.7% 11.9% Total Net Worth 484 573 641 729 Net Debt (Cash) / Equity (x) (0.24) (0.25) (0.28) (0.30) Minority Interest 76 76 76 76 Net Debt (Cash) / EBITDA (x) 0.45 (0.83) (1.20) (1.31) Total Equity & Liabilities 3,236 3,059 2,904 2,988 Net Debt (136) (161) (201) (240) Company and Stock Data Price (EGP) 62.67 on 21 August 2016 Income Statement Revenue 3,882 3,992 3,840 4,195 Bloomberg / Reuters ORAS EY / ORAS.CA (mn) (mn) EBITDA (302) 195 168 183 MKT Cap / Shares EGP7,398 / 118 EBIT (356) 139 110 125 3M ADVT (mn) USD0.9 EBT (384) 147 124 149 Float 46% Net Income (348) 89 80 99 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations 201 171 139 150 Sawiris family 54% CF from Investments (79) (76) (77) (80) CF from Finance & Non Operating CF 115 (135) (87) (100)

Source: Orascom Construction Limited, EFG Hermes estimates

Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 44 45 Share Price Performance Relative to HFI (VWAP) (Rebased) ORASCOM DEVELOPMENT HOLDING www.orascomdh.com 6.0 Orascom Development Holding (EDR) (EGP) HFI (VWAP)

5.5 EGYPT

5.0 Real Estate & Hospitality BUSINESS DESCIPTION 4.5 Orascom Development Holding (OD Holding) is a developer and an operator of integrated towns, and is active in three core segments: hotels (32 hotels with around 7,500 hotel rooms), real estate and construction (CHF1.83bn cumulative 4.0 contracted sales) and destination management, which includes all town amenities. The company has presence in QUESTIONS eight countries, including Egypt, the UAE, Jordan, Oman, Switzerland and Morocco. 3.5

3.0 INVESTMENT THESIS 1. Update on the Egyptian subsidiary: i) Strategy for the tourism segment amidst the challenging market conditions in Egypt and the prolonged periods of travel bans; ii) ODH has a diversified portfolio in hospitality, real estate and construction segments. The company’s current strategy recent and planned launches for real estate arm; iii) progress with regard to the company’s announced plans to expand its land bank to New Cairo and the North Coast is focused on four-pillars: i) reducing costs to increase efficiency, ii) growing core business and accelerating land ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 development and monetisation, iii) debt reduction and restructuring, and iv) increasing focus on value-added 21 Nov 15 investments. ODH may be seen as a play on a recovery in the hospitality sector in Egypt with around 6,000 hotel rooms in the Red Sea. 2. Could you please provide us with some background on the reason for choosing Fayoum for a real estate-hotel complex? Valuation Statistics (EGP) 2013a 2014a 2015a 1H16a (TTM) ...... EPS (5.51) 1.47 (0.67) (1.59) DPS 0.00 0.00 0.00 - 3. Latest updates on the company’s international operations, particularly in Oman and Montenegro BVPS 19.05 21.79 25.47 16.06 ......

P/E (x) N/M N/M N/M N/M 4. What are the latest updates on the ongoing negotiations for the debt restructuring? Dividend Yield 0.0% 0.0% 0.0% 0.0% ...... P/BV (x) N/M N/M N/M N/M FCF Yield -2.7% -1.7% -2.4% -3.2% EV / EBITDA (x) N/M N/M N/M N/M

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Land Bank (mn sqm) 100.2 Financial Statements - December Year End (EGP mn) Revenue Growth N/A 13.1% 22.4% -18.3% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBITDA Margin -15.6% 45.2% 20.9% -5.8% Current Assets 561 653 568 499 EBIT Margin -29.2% 35.2% 11.4% -17.8% Net Fixed Assets 766 887 940 864 Effective Tax Rate N/M N/M N/M N/M Intangibles & Others 346 241 301 301 ROAE -28.9% 7.2% -2.8% -9.4% Total Assets 1,673 1,781 1,809 1,664 ROAIC -17.9% 4.4% -1.8% -6.1% Current Liabilities (Including Debt) 629 631 566 546 DPO 0.0% 0.0% 0.0% 0.0% Long-Term Liabilities (Including Debt) 282 329 285 259 Total Net Worth 543 621 726 649 Net Debt (Cash) / Equity (x) 0.62 0.69 0.47 0.59 Minority Interest 219 200 232 210 Net Debt (Cash) / EBITDA (x) N/M 3.81 5.30 N/M Total Equity & Liabilities 1,673 1,781 1,809 1,664 Net Debt 336 431 339 384 Company and Stock Data Price (EGP) 4.31 on 21 August 2016 Income Statement Bloomberg / Reuters ODHN EY / ODHR.CA Revenue 221 250 306 250 MKT Cap (mn) / Shares (mn) CHF2,460 / 571 EBITDA (35) 113 64 (15) 3M ADVT (mn) USD0.2 EBIT (65) 88 35 (45) Float N/A EBT (96) 46 (18) (76) Foreign Ownership Limit No Limit Net Income (157) 42 (19) (64) Major Shareholders Cash Flow Statement Samih Sawiris 68% CF from Operations (52) (26) (24) (42) CF from Investments (14) (16) (36) (37) CF from Finance & Non Operating CF 50 58 133 186

Source: Orascom Development Holding, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 46 47 Share Price Performance Relative to HFI (VWAP) (Rebased) ORIENTAL WEAVERS FAIR VALUE EGP11.30 RATING BUY www.orientalweavers.com 12.0 Oriental Weavers (EGP) HFI (VWAP) 11.0 EGYPT 10.0 9.0 Consumer Discretionary INVESTMENT THESIS 8.0 Oriental Weavers (OW) is a fully integrated machine-woven rug and carpet producer with significant export exposure. 7.0 The company has grown to be the largest global producer in its category with eight facilities in Egypt plus one in the 6.0 US and another in China. OW sources polypropylene (PP) granules externally (up to 50% from sister company EPP), QUESTIONS converts them into fibers (at OWI and EFCO, provide c80% of needs, excess sold to third parties), spins and dyes nylon 5.0 yarn (at King Tut, excess is exported, may build a second plant for cEGP470 million), weaves into the end product 4.0 and distributes to customers. While the company holds the lion’s share of its home market (c85% market share, c230 showrooms), exports comprise 55% of 2015 revenue, directed to 130 countries (N. America c49% of 2015 exports, 1. What trends are you seeing in local and export markets, in terms of demand and pricing? Are competitive pressures in export markets (mainly Europe) easing? Europe c34%). Margins have improved since 2012 as the company embarked on a value-focus strategy, catering to ...... demand for higher carpet & rug grades. Also, OW has a low effective tax rate due to a lifetime tax exemption at OW 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 International (woven, export-focused). We are Buyers of OW as valuation is compelling and the stock offers a natural 2. How much margin expansion do you see materialising in the short- to medium-term, given low polypropylene prices and EGP devaluation? hedge against potential EGP devaluation (high exports, nearly all FX needs provided internally). Earnings growth has been gaining steam as: i) export rebate collection improves post-return to old system (pre-July 2014), and ii) benefits ...... (EGP) from the correction in PP prices (oil-based products are c50% of cash CoGS) should be evident in the local market Valuation Statistics 2015a 2016e 2017e 2018e where OW has greater pricing power than exports. EPS 0.90 1.07 1.14 1.09 3. Are there any updates regarding the export rebate programme? Has the company been able to collect late payments and, what is a sustainable percentage of export sales? DPS 0.50 0.65 0.75 0.75 ...... VALUATION & RISKS BVPS 8.81 9.17 9.66 10.09 We value OW using a five-year discounted-cash-flow (DCF) methodology, yielding a fair value of EGP11.3/share. Upside risks include: i) a faster-than-expected demand recovery in main export markets (particularly Europe), ii) 4. What is the devaluation impact on the company’s operations, balance sheet and working capital cycle? Do exports fully cover the company’s FX needs for inputs? greater-than-expected margin expansion from lower PP prices and EGP devaluation, iii) an extension of Egypt’s export P/E (x) 8.09 6.75 6.35 6.64 ...... rebate programme (factored into forecasts until mid-2018) and better-than-expected rebate collection, and iv) value- Dividend Yield 6.9% 9.0% 10.4% 10.4% accretive downstream expansions in Europe and China or acquisitions/joint ventures with textile companies. Downside P/BV (x) 0.8 0.8 0.7 0.7 risks include: i) unfavourable changes to the export rebate programme (c35% of 2015 earnings), ii) prolonged economic slowdown in main markets coinciding with tougher competition from EM peers (that would also curtail the FCF Yield 5.5% 16.0% 17.3% 16.4% company’s pricing power), iii) margin pressures due to a surge in raw materials prices (PP in particular), unmatched EV / EBITDA (x) 4.8 4.2 3.9 4.1 by price increases, iv) loss of major export clients, and v) adverse outcome from recent monopolistic practices case.

Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth 3.7% 3.6% 12.1% 8.6% Financial Statements - December Year End (EGP mn) EBITDA Margin 15.8% 17.4% 16.6% 14.5% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 10.1% 12.0% 11.6% 9.9% Current Assets 3,613 3,938 4,118 4,442 Effective Tax Rate -16.6% -17.5% -17.5% -17.5% Net Fixed Assets 2,687 2,512 2,335 2,156 Intangibles & Others 408 408 408 408 ROAE 13.0% 14.5% 14.8% 13.5% Total Assets 6,708 6,858 6,860 7,005 ROAIC 11.1% 13.2% 14.4% 13.4% Current Liabilities (Including Debt) 2,475 2,429 2,264 2,239 DPO 55.9% 60.6% 65.8% 68.8% Long-Term Liabilities (Including Debt) 270 302 249 224 Total Net Worth 3,583 3,710 3,885 4,038 Net Debt (Cash) / Equity (x) 0.23 0.15 0.06 0.00 Minority Interest 381 417 462 504 Net Debt (Cash) / EBITDA (x) 0.91 0.52 0.21 0.02 Total Equity & Liabilities 6,708 6,858 6,860 7,005 Net Debt 842 554 242 20 Company and Stock Data Price (EGP) 7.24 on 21 August 2016 Income Statement Revenue 5,875 6,089 6,828 7,414 Bloomberg / Reuters ORWE EY / ORWE.CA (mn) (mn) EBITDA 926 1,061 1,130 1,079 MKT Cap / Shares EGP3,258 / 450 EBIT 593 731 793 735 3M ADVT (mn) USD0.2 EBT 407 597 730 698 Float 43% Net Income 356 456 557 533 Foreign Ownership Limit No Limit Appropriations (27) (36) (45) (43) Net Attributable Income 403 483 513 491 Major Shareholders Khamis Family 57% Cash Flow Statement CF from Operations 540 768 820 764 CF from Investments (279) (155) (160) (165) CF from Finance & Non Operating CF (361) (525) (714) (529)

Source: Oriental Weavers, EFG Hermes estimates Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 48 49 Share Price Performance Relative to HFI (VWAP) (Rebased) PALM HILLS DEVELOPMENTS FAIR VALUE EGP3.06 RATING BUY www.palmhillsdevelopments.com PHD (EGP) HFI (VWAP) 2.8 2.6 EGYPT 2.4 2.2 Real Estate & Hospitality INVESTMENT THESIS 2.0 Palm Hills Developments (PHD) is a leading property developer that has witnessed a successful operational turnaround 1.8 between 2013 and 2015, regaining market presence and strongly recovering from the two difficult years that 1.6 followed the Egyptian uprising in 2011. In 2015, the company has been active in replenishing and growing its land QUESTIONS bank in Cairo and the North Coast. This came with a bias towards revenue-sharing agreements, be it with the 1.4 government, other private developers, or with private landlords. The company’s land bank currently stands at 27mn 1.2 sqm, distributed over four main locations, namely: West Cairo (49%), East Cairo (17%), North Coast (16%), and Riyadh (18%, in raw land), which the company aims to dispose of in the near future. Going forward, we favour the 1. How do you assess the general market conditions, in light of increased cancellation rates, inflationary pressures and affordability concerns? company’s strong visibility of future cash flow and earnings for the company’s projects, supported by the regained ...... market presence, a growing land bank and a strong operating environment. Our numbers incorporate an average 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 of EGP6.3bn per year in contracted sales in 2016-18e, with reported revenue growing by a CAGR of 10.2% in 2. What is the timeline for the planned 500-acre project with NUCA? 2015-18e, gross margins expanding c12pps and adjusted net income growing at 18.7% over the same period. The company is in the process of establishing a recurring income stream portfolio, which is aimed to bring-in 25% of net ...... (EGP) income by 2020. Valuation Statistics 2015a 2016e 2017e 2018e EPS 0.47 0.25 0.33 0.51 3. Could you please elaborate on the planned deleverage exercise, with a focus on the portion planned before year-end? VALUATION & RISKS DPS 0.15 0.15 0.20 0.25 ...... We set our fair value of EGP3.06 per share on 0.6x 2016e NAV. Our assigned discount to NAV is in line with the stock’s BVPS 3.03 2.95 3.08 3.34 trading history to its forward-looking NAV since January 2015. We estimate 2016e NAV at EGP5.00 per share. Our NAV is derived by valuing the company’s development plan for its projects based on management’s master plans, in 4. What were the drivers for growth in income from rental portfolio in 1H16? How is the company planning to reach the 25% target by 2020? P/E (x) 5.37 10.31 7.63 5.00 terms of sellable area and our assumptions for selling prices, costs, and the pace of sales throughout the cycle. We ...... Dividend Yield 5.9% 5.9% 7.8% 9.8% value the residual land bank and investment properties using NAV based on similar-market-transaction methodology. Downside risks to our valuation include: i) slowdown in operating environment, ii) failure to launch the project that P/BV (x) 0.8 0.9 0.8 0.8 is co-developed with the Ministry of Housing, iii) a hard landing in Egypt’s real estate activity that would have a FCF Yield -36.4% -8.4% -27.8% -9.9% negative impact on the value of land and investment properties (55% of our valuation). On the upside: i) potential EV / EBITDA (x) 11.6 10.8 8.7 5.5 new projects through acquisitions and/or co-development agreements, ii) launch of Botanica project, assuming new P/NAV (x) 0.51 - - - BuA approvals, and iii) the company successfully launching its investment portfolio that would have a positive impact on its recurring income stream. Key Forecast Drivers 2015a 2016e 2017e 2018e Land Bank (mn sqm) 27.1 Financial Statements - December Year End (EGP mn) Revenue Growth 69.1% 26.2% -1.1% 7.1% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 20.2% 17.0% 21.4% 31.8% Short-term Receivables 3,250 4,129 4,658 5,107 EBIT Margin 20.2% 16.8% 21.1% 31.5% Development Properties 6,541 6,136 6,442 6,682 Effective Tax Rate 3.4% 22.5% 22.5% 22.5% Intangibles & Others 9,073 9,298 8,488 8,255 ROAE 20.3% 8.9% 11.5% 16.5% Total Assets 18,864 19,563 19,588 20,043 ROAIC 10.5% 10.3% 11.7% 16.5% Current Liabilities (Including Debt) 8,459 8,838 9,240 10,134 Long-Term Liabilities (Including Debt) 3,821 3,915 3,229 2,189 DPO 31.6% 60.6% 59.9% 49.0% Total Net Worth 6,314 6,539 6,848 7,449 Net Debt (Cash) / Equity (x) 0.47 0.52 0.61 0.60 Minority Interest 271 271 271 271 Net Debt (Cash) / EBITDA (x) 2.99 3.09 3.75 2.63 Total Equity & Liabilities 18,864 19,563 19,588 20,043 Net Debt 2,145 2,365 3,564 3,980 Company and Stock Data Price (EGP) 2.55 on 21 August 2016 Income Statement Revenue 3,561 4,495 4,447 4,763 Bloomberg / Reuters PHDC EY / PHDC.CA (mn) (mn) EBITDA 718 766 950 1,513 MKT Cap / Shares EGP5,888 / 2,309 EBIT 718 754 939 1,501 3M ADVT (mn) USD3.2 EBT 1,102 737 995 1,520 Float 16% Net Income 1,031 571 771 1,178 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations (2,659) (72) (1,198) (180) MMID 42.5% CF from Investments 643 (422) (438) (401) Aabar Investments 5.5% CF from Finance & Non Operating CF 2,780 541 1,256 442 Ropplewood 2.5%

Source: Palm Hills Developments, EFG Hermes estimates

Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 50 51 Share Price Performance Relative to HFI (VWAP) (Rebased) PORTO GROUP FAIR VALUE EGP0.28 RATING NEUTRAL www.portogroup.com 0.5 Porto Group (EGP) HFI (VWAP) EGYPT

0.4 Real Estate & Hospitality INVESTMENT THESIS Porto Group was established in August 2015 as a purely real estate development company, resulting from the spin-off exercise undertaken by Amer Group. Porto Group has a land bank of 4.7mn sqm, scattered across primary home and 0.3 secondary home projects in Egypt, Syria, Jordan and Morocco. The cumulative sales value of the company’s projects QUESTIONS amounted to EGP7.8bn in June 2016. The company’s backlog stood at EGP5.6bn as of end of June 2016. Porto Group will be the sole real estate developer for future Porto-branded communities, in Egypt and elsewhere. The company’s 0.2 balance sheet is zero-leveraged with a bias towards revenue-sharing agreements, in a strategy to avoid high cash commitment associated with land acquisitions. We believe the stock offers a less attractive investment opportunity 1. Could you please shed more light on the rationale behind the company’s ongoing restructuring programme, to consolidate all local and international operations into two compared to its local peers, given the company’s: i) full reliance on property sales, in the absence of a recurring source companies? of income, albeit geographically diversified between Egypt and Jordan, ii) depleting land bank, particularly in Egypt, 21 Oct 15 21 Apr 16 21 Aug 16 21 Feb 15 21 Jun 16 ...... which increases uncertainty around the company’s long-term prospects, iii) concentration of company valuation in 21 Dec 15 one project, namely, Porto October, contributing three-fourth of valuation, and iv) arising affordability concerns within the segment Porto is targeting. 2. The company is largely dependent upon revenue-sharing agreements for land acquisitions. What is the rationale behind this? And what is the implied cost/sqm for the Valuation Statistics (EGP) 2015a 2016e 2017e 2018e company’s main projects? VALUATION & RISKS EPS 0.01 0.02 0.03 0.05 ...... We set our fair value of EGP0.28 per share based on 0.70x 2016e NAV, assigning 30% discount to NAV. The assigned DPS 0.02 0.01 0.02 0.02 discount is the second lowest in our peer group, after SODIC, which is supported by our relatively strong visibility BVPS 0.12 0.13 0.15 0.18 3. Any updates on the company’s Syrian operations? Amidst the political situation there, are operations halted? How much is invested to date in Syria? of future cash flow and earnings for the company’s projects, which we believe investors will appreciate, especially in the current operating environment. Our valuation is driven by the company’s operating environment, where sales ...... P/E (x) 33.58 12.90 8.96 5.39 pace and selling prices are the major factors that determine the value of the company’s development properties. Dividend Yield 7.3% 4.3% 5.4% 6.1% Downside risks to our valuation include: i) deteriorating operating environment, which may result in lower contracted sales numbers, putting cash flows at risk, and ii) deteriorating political and economic outlook for Syria that would P/BV (x) 2.3 2.2 1.9 1.6 imply negative value from Porto Tartous (currently no value in our valuation). Upside risks to our valuation include: i) FCF Yield -6.7% -10.2% 12.4% -13.4% access to prime land plots either through acquisition or attractively-priced revenue sharing agreement, which would EV / EBITDA (x) 42.3 6.9 3.9 2.3 encourage us to lower the assigned discount rate to our calculated NAV, and ii) faster-than-assumed sales pace and P/NAV (x) 0.70 - - - price escalations.

Key Forecast Drivers 2015a 2016e 2017e 2018e Land Bank (sqm mn) 4.7 Financial Statements - December Year End (EGP mn) Revenue Growth 32.5% 33.4% 25.5% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 1.7% 7.6% 10.1% 13.6% Short-term Receivables 913 1,256 1,495 1,801 EBIT Margin 1.7% 7.2% 9.7% 13.3% Development Properties 1,934 2,129 1,903 2,019 Effective Tax Rate 48.6% 25.0% 25.0% 25.0% Intangibles & Others 951 706 830 611 ROAE 13.8% 17.3% 22.6% 31.7% Total Assets 3,798 4,092 4,228 4,431 ROAIC -288.1% 119.6% 97.4% 96.5% Current Liabilities (Including Debt) 3,241 3,490 3,552 3,596 Long-Term Liabilities (Including Debt) 7 7 7 7 DPO 245.2% 55.3% 48.0% 32.7% Total Net Worth 546 590 664 823 Net Debt (Cash) / Equity (x) (1.07) (0.58) (0.70) (0.30) Minority Interest 5 5 5 5 Net Debt (Cash) / EBITDA (x) (35.64) (3.41) (2.65) (0.84) Total Equity & Liabilities 3,798 4,092 4,228 4,431 Net Debt (586) (344) (469) (252) Company and Stock Data Price (EGP) 0.28 on 21 August 2016 Income Statement Revenue 996 1,321 1,762 2,212 Bloomberg / Reuters PORT EY / PORT.CA (mn) (mn) EBITDA 16 101 177 301 MKT Cap / Shares EGP1,277 / 4,560 EBIT 16 95 172 295 3M ADVT (mn) USD0.4 EBT 72 132 190 316 Float 33% Net Income 38 99 142 237 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations 246 (127) 161 (168) Sol Global Holding Limited 35% CF from Investments (331) (3) (3) (3) Amer Wakf 15% CF from Finance & Non Operating CF 657 - (55) (68) Lantess International Limited 12%

Source: Porto Group, EFG Hermes estimates

Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 52 53 Share Price Performance Relative to HFI (VWAP) (Rebased) QALAA HOLDINGS www.qalaaholdings.com Qalaa Holdings (EGP) HFI (VWAP) 2.0 EGYPT 1.8

1.6 Financials BUSINESS DESCIPTION 1.4 Qalaa Holdings is a leading investment company with presence in 15 countries across the Middle East and Africa and a focus on five core industries – i) energy; ii) transportation & logistics; iii) agriculture & consumer foods; iv) 1.2 mining; and v) cement & construction. The company’s strategy to focus on its core platforms should allow it to 1.0 QUESTIONS capture the compelling upside presented by the current macro trends and policy developments in the Middle East and Africa region, following the Arab Spring, especially from energy deregulation in Egypt and growing infrastructure 0.8 demand. The company has recently completed a number of corporate transactions aimed at increasing stakes in core companies and shedding away of non-core investments, which have been primarily done through i) asset exchange 1. What are the company’s plans for deleveraging its holding debt balances? Will the company restructure current facilities with local banks, and are local banks willing to programmes; and ii) equity swaps between investors in platform companies and the holding company. do so? 21 Aug 15 21 May 16 21 Aug 16 21 Feb 16 21 Nov 15 ......

INVESTMENT THESIS Al Qalaa Holdings has transformed its business model to capture the compelling upside of longer holding periods, 2. What is your current divestment plan for Rift valley railways, especially as it is now booked as a discontinued operation? (EGP) while shedding non-core investments to focus on top companies in high-growth industries through: i) swap-up of Valuation Statistics 2013a 2014a 2015a 1Q16a (TTM) ...... co-investors from platform companies into Qalaa Holdings via a capital increase with swapped shares subject to a EPS (0.57) (0.84) (0.70) (0.87) lock-up period; ii) divestment of non-core investments over the coming three or more years; iii) holding platforms in DPS 0.00 0.00 0.00 N/A 3. Has the company received any new offers for the divestment of the Algerian cement assets, as well as the remaining Agrifood assets (Dina Farms)? five core industries with the strongest macro fundamentals; and iv) aggressively undergoing a deleveraging campaign BVPS 3.89 2.39 1.54 1.54 ...... to bring subsidiaries out of distress. Qalaa is also set to witness substantial growth once its flagship USD3.7bn refinery (ERC-19% owned) commences operations in 2017, in our view. The recent move by the Egyptian government to cut subsidies in the energy sector bodes well for Qalaa, in our view, especially as TAQA Arabia (one of Egypt’s leading P/E (x) N/M N/M N/M N/M 4. Would the company consider potentially divesting Taqa Arabia to any potential investor? energy distributors) should be quick to capitalise on the move. Dividend Yield 0.0% 0.0% 0.0% 0.0% ...... P/BV (x) 0.3 0.4 0.7 0.7 FCF Yield 4.9% -71.6% -32.7% -4.9% 5. What is the current status of Taqa Arabia’s expansion plans in electricity generation? EV / EBITDA (x) N/M 40.2 31.0 36.7 ......

Key Performance Ratios 2013a 2014a 2015a 1Q16a (TTM) 6. What is the recent progress for ERC, and when do you expect the company to go into commercial operations? Revenue Growth 12.3% 34.3% 27.3% 13.7% ...... Financial Statements - December Year End (EGP mn) EBITDA Margin -0.5% 10.1% 10.3% 8.9% Balance Sheet 2013a 2014a 2015a 1Q16a (TTM) EBIT Margin -7.4% 4.1% 5.0% 3.7% Current Assets 6,325 7,984 10,052 11,924 Effective Tax Rate 3.7% 9.4% 14.7% 0.0% Net Fixed Assets 16,112 17,867 22,053 25,241 Intangibles & Others 3,862 2,987 2,515 1,673 ROAE -16.0% -4.2% -5.8% -6.5% Total Assets 30,040 32,415 37,177 41,363 ROAIC N/A N/A N/A N/A Current Liabilities (Including Debt) 9,730 8,169 11,472 12,527 DPO 0.0% 0.0% 0.0% 0.0% Long-Term Liabilities (Including Debt) 7,586 12,021 14,755 17,211 Net Debt (Cash) / Equity (x) 0.36 0.55 0.60 0.77 Total Net Worth 12,724 11,831 10,950 11,626 Minority Interest 8,699 8,805 8,153 8,917 Net Debt (Cash) / EBITDA (x) N/M 17.34 13.46 22.11 Total Equity & Liabilities 30,040 32,415 37,177 41,363 Net Debt 7,765 11,306 11,400 15,801 Company and Stock Data Price (EGP) 1.04 on 15 August 2016 Income Statement Bloomberg / Reuters CCAP EY / CCAP.CA Revenue 4,806 6,453 8,215 7,999 MKT Cap (mn) / Shares (mn) EGP1,513 / 1,455 EBITDA (23) 652 847 715 3M ADVT (mn) USD2.3 EBIT (357) 263 410 300 Float 60% EBT (1,256) (1,252) (1,069) (1,149) Foreign Ownership Limit No Limit Net Income (1,897) (880) (1,155) (1,286) Major Shareholders Cash Flow Statement Citadel Capital Prtn 30% CF from Operations (166) (2,406) (526) (1,884) Emirates Intl Invest 10% CF from Investments (149) (1,392) (1,668) (2,121) The Caravel Fund 7% CF from Finance & Non Operating CF 280 4,042 3,399 5,545

Source: Qalaa Holdings, EFG Hermes, and Bloomberg Ahmed Hazem Maher INSIGHTS INTO THE NEW REALITY [email protected] 54 55 Share Price Performance Relative to HFI (VWAP) (Rebased) SODIC FAIR VALUE EGP15.20 RATING BUY www.sodic.com 15.0 SODIC (EGP) HFI (VWAP) EGYPT 13.0

11.0 Real Estate & Hospitality INVESTMENT THESIS SODIC is a leading property developer in Egypt, with a current land bank of 13mn sqm. The company targets the high 9.0 end and upper middle-income bracket through offering various products. Before its recent land acquisitions, SODIC’s growth potential and future outlook have been somewhat hindered by its limited undeveloped land bank. However, 7.0 QUESTIONS SODIC’s acquisition of 1.8mn sqm in three separate land plots in Egypt during the past 18 months has increased the company’s land bank by c30%. The largest acquired plot was in East of Cairo back in May 2014, which was perceived 5.0 expensive at the time of acquisition, but is value-accretive on our numbers. Moreover, SODIC managed to penetrate the lucrative secondary home market, acquiring 0.44mn sqm in the North Coast, and launching the project in August 1. How does management assess the current market conditions and the concerns regarding the general market softness? 2015. The company has recently announced the acquisition of a relatively small land plot, 126,000 sqm, in the West ...... of Cairo through a government auction. We believe SODIC would continue to actively bid in new auctions to further 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 expand its land bank. In addition, the company is considering expanding its investment properties’ portfolio further. 2. How comfortable is management to meet the contracted sales 2016 target of EGP4.9bn, given that EGP1.9bn only were contracted in 1H16?

VALUATION & RISKS ...... (EGP) We set our fair value of EGP15.2 per share based on 0.80x 2016e NAV, assigning 20% discount to NAV, in line Valuation Statistics 2015a 2016e 2017e 2018e with the past five-year average discount to its forward NAV. The assigned discount is the lowest in our peer group, EPS 0.92 0.95 1.29 2.08 3. What are the plans for future land acquisitions? What are the preferences, in terms of land size, location and nature of agreement (revenue-sharing or cash)? which is supported by our relatively strong visibility of future cash flow and earnings for the company’s projects, DPS 0.00 0.00 0.00 0.83 ...... which we believe investors will appreciate, especially in the current operating environment. Our valuation is driven BVPS 9.99 10.94 12.23 13.47 by the company’s operating environment, where sales pace and selling prices are the major factors that determine the value of the company’s development properties. As for the investment properties, occupancy rates and currently 4. What is the timeline for the co-development project with Heliopolis Housing? How much are the expected sales from the project? P/E (x) 14.97 14.48 10.63 6.61 attractive rental yields, especially for retail space, are our major value drivers. Downside risks to our valuation include ...... Dividend Yield 0.0% 0.0% 0.0% 6.1% a deteriorating operating environment, along with higher-than-expected construction costs. The company’s sensitivity to its operating dynamics have been further inflated, following the purchase of the new land in May 2014, given the P/BV (x) 1.4 1.3 1.1 1.0 company’s current fixed land liability obligations. Upside risks include new land acquisitions, start of operations at Al FCF Yield -1.8% -8.1% 11.7% 52.0% Mansoura Mall, launch of Al Yosr land and higher valuations for commercial and retail land. EV / EBITDA (x) 9.6 8.7 6.4 4.2 P/NAV (x) 0.72 - - -

Key Forecast Drivers 2015a 2016e 2017e 2018e Land Bank (mn sqm) 13.0 Financial Statements - December Year End (EGP mn) Revenue Growth 7.7% 23.7% 25.7% 24.2% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 27.7% 24.7% 26.8% 32.7% Short-term Receivables 2,766 2,931 3,066 3,207 EBIT Margin 25.9% 22.9% 25.1% 31.2% Development Properties 7,036 8,109 9,034 9,237 Effective Tax Rate -23.1% -22.5% -22.5% -22.5% Intangibles & Others 6,956 8,501 9,277 9,800 ROAE 9.6% 9.1% 11.1% 16.2% Total Assets 16,758 19,542 21,376 22,244 ROAIC 12.0% 10.7% 12.7% 26.0% Current Liabilities (Including Debt) 10,925 13,262 15,167 16,289 Long-Term Liabilities (Including Debt) 2,447 2,573 2,065 1,388 DPO 0.0% 0.0% 0.0% 40.0% Total Net Worth 3,295 3,616 4,054 4,476 Net Debt (Cash) / Equity (x) (0.25) (0.08) (0.14) (0.64) Minority Interest 91 91 91 91 Net Debt (Cash) / EBITDA (x) (2.08) (0.63) (0.95) (3.14) Total Equity & Liabilities 16,758 19,542 21,376 22,244 Net Debt (847) (281) (583) (2,911) Company and Stock Data Price (EGP) 13.72 on 21 August 2016 Income Statement Revenue 1,471 1,819 2,287 2,840 Bloomberg / Reuters OCDI EY / OCDI.CA (mn) (mn) EBITDA 408 449 612 928 MKT Cap / Shares EGP4,650 / 339 EBIT 381 416 575 887 3M ADVT (mn) USD2 EBT 418 428 579 923 Float 46% Net Income 311 321 437 704 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations (19) (361) 565 2,444 Abanumay family 13% CF from Investments (66) (14) (20) (27) Olayan Saudi Investment Company 13% CF from Finance & Non Operating CF (28) 613 453 (347) Ripplewood Advisors 9%

Source: SODIC, EFG Hermes estimates

Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 56 57 Share Price Performance Relative to HFI (VWAP) (Rebased) TELECOM EGYPT FAIR VALUE EGP10.25 RATING NEUTRAL wwww.te.eg 10.0 Telecom Egypt (EGP) HFI (VWAP) EGYPT 9.0

8.0 Telecommunication Services INVESTMENT THESIS Telecom Egypt (TE) is Egypt’s sole fixed-line operator, owning a 45% stake in the country’s largest mobile operator by 7.0 market share, Vodafone Egypt (VFE). TE also provides internet and data services through its wholly-owned subsidiary, TE Data, the country’s largest ISP, in addition to wholesale services via Egypt’s only backbone network. Since TE 6.0 QUESTIONS was privatised in 2005 (20% of its shares were sold in an IPO), the government-owned company has brought in management with private-sector backgrounds. This management team has improved TE’s operational efficiency, 5.0 succeeding in reinstating financial strength by repaying debts and increasing FCF generation. This has resulted in attractive dividend payout ratios. TE is currently seeking to add mobile services to its portfolio through applying for 1. How accurate are the figures currently circulating in the media regarding the 4G license price and terms (EGP7bn of which 50% to be paid in USD)? 4G spectrum in 2016. This is to provide support to declining revenues, as well as capture a larger share of the fastest- ...... growing telecom segment in Egypt, the broadband segment. 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 2. Are there any updates on the VFE stake sale? Have you conducted any talks with Vodafone Group yet on the potential acquisition of a controlling stake in VFE by TE? VALUATION & RISKS Our DCF-based SOTP valuation yields a FV of EGP10.25/share, and we have a Neutral rating on the stock. TE’s fixed- ...... (EGP) line business (including the cable systems and broadband business) is the second largest contributor to our sum-of- Valuation Statistics 2015a 2016e 2017e 2018e the-parts (SOTP) valuation for the company at 31%, while its VFE stake contributes 69%. Due to its limited growth EPS 1.51 1.49 1.32 1.39 3. How much of the recent strength in top-line and margins would you attribute to the weakening of the EGP vs. USD? Do you expect the strong margins to persist and why? profile, the stock trades at a relative discount to the average multiples of our MENA telecoms coverage universe. DPS 0.75 0.75 0.75 0.75 ...... Dividends, which were traditionally high, have recently been cut due to no distributions from VFE. Discussions about BVPS 16.97 17.70 18.27 18.91 the mobile licence invoked a potential transaction regarding the VFE stake, as TE may be asked by the government to either exit before acquiring 4G spectrum, or walk away from the latter and possibly take control of VFE. The upside 4. Given the current high inflationary environment in Egypt, do you think that TE would be obliged to raise salaries by more than 10% per year for the coming few years? P/E (x) 6.53 6.64 7.48 7.11 to our forecasts and valuation mainly stems from the retail segment, given Egypt’s low broadband penetration and ...... Dividend Yield 7.6% 7.6% 7.6% 7.6% the fast growth expected to be generated from this segment. The main risks to our valuation are: i) increasing fixed- P/BV (x) 0.6 0.6 0.5 0.5 to-mobile substitution, which would mainly pressure TE’s retail revenue, and ii) further pressure on margins from both 5. With the recent change in recognition of certain project-related opex (to be booked as capex), should investors expect capex-to-sales higher than your guidance? employee and interconnection costs. FCF Yield 0.8% 8.0% 9.9% 10.9% ...... EV / EBITDA (x) 2.6 2.4 2.3 2.3 EV / Sub. (EGP) 596 579 564 550

Key Forecast Drivers 2015a 2016e 2017e 2018e Total Subscribers (mn) 45 46 48 49 (EGP mn) Financial Statements - December Year End Revenue Growth 0.2% 4.1% 3.0% 4.0% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 28.2% 29.5% 28.9% 28.5% Current Assets 9,167 9,871 10,395 11,185 EBIT Margin 15.2% 16.9% 16.1% 15.7% Net Fixed Assets 13,917 15,191 15,859 16,299 Effective Tax Rate 1.5% -14.8% -14.1% -13.7% Intangibles & Others 11,494 11,150 11,308 11,576 ROAE 9.2% 8.6% 7.3% 7.5% Total Assets 34,578 36,212 37,562 39,060 ROAIC 4.7% 3.1% 3.1% 3.1% Current Liabilities (Including Debt) 5,269 5,702 6,106 6,534 DPO 49.7% 50.5% 56.9% 54.1% Long-Term Liabilities (Including Debt) 334 277 251 232 Net Debt (Cash) / Equity (x) (0.08) (0.09) (0.10) (0.11) Total Net Worth 28,964 30,220 31,191 32,277 Net Debt (Cash) / EBITDA (x) (0.63) (0.70) (0.80) (0.92) Minority Interest 10 12 14 16 Total Equity & Liabilities 34,578 36,212 37,562 39,060 Net Debt (2,175) (2,632) (3,023) (3,580) Company and Stock Data Price (EGP) 9.86 on 21 August 2016 Income Statement Revenue 12,184 12,689 13,070 13,588 Bloomberg / Reuters ETEL EY / ETEL.CA (mn) (mn) EBITDA 3,436 3,741 3,783 3,874 MKT Cap / Shares EGP16,832 / 1,707 EBIT 1,847 2,146 2,106 2,128 3M ADVT (mn) USD1.9 EBT 2,955 3,541 3,188 3,311 Float 20% Net Income 2,997 3,015 2,735 2,856 Foreign Ownership Limit No Limit Appropriations (474) (479) (484) (489) Net Attributable Income 2,523 2,536 2,251 2,367 Major Shareholders Egyptian Government 80% Cash Flow Statement CF from Operations 1,628 2,557 2,781 2,797 CF from Investments (1,458) (1,179) (1,090) (943) CF from Finance & Non Operating CF (464) (978) (1,357) (1,324)

Source: Telecom Egypt, EFG Hermes estimates Omar Maher Karim Riad INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 58 59 Share Price Performance Relative to HFI (VWAP) (Rebased) TMG HOLDING FAIR VALUE EGP10.25 RATING BUY www.talaatmoustafa.com 8.8 Talaat Moustafa Group (TMG) (EGP) HFI (VWAP) 8.2 EGYPT 7.6 7.0 Real Estate & Hospitality INVESTMENT THESIS 6.4 A leading developer in Egypt that managed to establish itself within its target market segment through its strong 5.8 branding and 20+ years track record. To date, the company has developed 9mn sqm of land and sold over 66,000 5.2 units. TMG has access to 43.3mn sqm of land bank, concentrated mainly in a single project, Madinaty (78%), in QUESTIONS East of Cairo. The company has an attractive business model, in our view, leveraging its cheap land acquired on 4.6 favourable terms with no initial cash outflow, off-plan sales to finance the construction process and strong position 4.0 in the growing middle/upper-income segment. TMG offers investors a unique exposure to Egypt’s growing real estate market, with a number of strengths that distinguish it as an attractive investment opportunity, including: i) strong 1. Does the company have plans to acquire new land in the medium term? earnings and cash flow visibility, ii) future growth potential, given its access to the largest land bank amongst listed ...... property stocks, and iii) exposure to the improving local tourism sector through the ownership of 884 hotel rooms, 21 Feb 16 21 May 16 21 Aug 15 21 Nov 15 21 Aug 16 with ambitious plans to triple the number of rooms. Management indicated that it targets a minimum of 35 million 2. Could you please elaborate on the building permits issues in Madinaty and Rehab? sqm of land bank at any point in time, thus, we expect with the near completion of sales in Al Rehab extension and strong sales and deliveries in Madinaty, the company might acquire new land plots within the coming 12-18 months...... Valuation Statistics (EGP) 2015a 2016e 2017e 2018e VALUATION & RISKS EPS 0.37 0.48 0.45 0.77 3. Could you please shed some light on the outlook and plans for the company’s hospitality operations? We set our fair value of EGP10.25 per share based on 0.5x 2016e NAV, in line with the stock’s average eight year DPS 0.15 0.15 0.20 0.40 ...... discount to its forward NAV. We estimate 2016e NAV at EGP20.50 per share. Our NAV is derived by valuing: i) the BVPS 12.97 13.30 13.55 13.92 company’s development plan for its projects, ii) the commercial land bank, and iii) the investment portfolio that comprises mainly hotel assets. We assign 50% discount to our calculated 2016e NAV, given the company’s current 4. When should we expect to see the sale of commercial land across the company’s projects kick-starting? P/E (x) 16.64 12.69 13.66 7.98 commercial land bank size and our relatively low visibility regarding its monetisation timeline. Downside risks to our ...... Dividend Yield 2.4% 2.4% 3.3% 6.5% valuation include: i) a hard landing of Egypt’s property market, lowering the value of land and resulting in stagnant sales activity, and ii) political instability that would worsen the outlook for the tourism sector in Egypt. On the upside: P/BV (x) 0.5 0.5 0.5 0.4 i) actual sale of large commercial land plots, setting a new price and increasing the potential of land monetisation, FCF Yield 14.3% 11.3% 5.6% 4.7% hence, reducing our assigned discount to NAV, ii) better-than-expected operating environment that would result in EV / EBITDA (x) 8.3 8.1 8.5 5.7 a boost in sales activity and iii) better-than-expected outlook for Egypt’s tourism industry, with the company adding P/NAV (x) 0.30 - - - more hotel rooms than our forecasts.

Key Forecast Drivers 2015a 2016e 2017e 2018e Land Bank (sqm mn) 43.3 Financial Statements - December Year End (EGP mn) Revenue Growth 17.3% 6.2% -8.9% 39.7% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 29.4% 28.1% 29.4% 31.4% Short-term Receivables 17,276 17,175 15,988 15,996 EBIT Margin 27.3% 26.1% 26.6% 29.0% Development Properties 19,214 19,536 23,785 25,840 Effective Tax Rate -30.5% -23.0% -23.0% -23.0% Intangibles & Others 23,953 25,678 26,476 27,296 ROAE 2.9% 3.7% 3.3% 5.6% Total Assets 60,443 62,390 66,248 69,132 ROAIC 4.7% 4.9% 4.7% 6.9% Current Liabilities (Including Debt) 29,180 30,989 34,832 37,449 Long-Term Liabilities (Including Debt) 3,608 3,057 2,557 2,062 DPO 39.4% 31.0% 44.5% 52.0% Total Net Worth 26,755 27,443 27,958 28,721 Net Debt (Cash) / Equity (x) 0.05 (0.01) (0.03) (0.05) Minority Interest 901 901 901 901 Net Debt (Cash) / EBITDA (x) 0.78 (0.13) (0.55) (0.62) Total Equity & Liabilities 60,443 62,390 66,248 69,132 Net Debt 1,424 (238) (975) (1,614) Company and Stock Data Price (EGP) 6.14 on 21 August 2016 Income Statement Revenue 6,180 6,564 5,977 8,348 Bloomberg / Reuters TMGH EY / TMGH.CA (mn) (mn) EBITDA 1,816 1,844 1,760 2,623 MKT Cap / Shares EGP12,670 / 2,064 EBIT 1,687 1,716 1,592 2,418 3M ADVT (mn) USD2.2 EBT 1,109 1,348 1,262 2,125 Float 24% Net Income 762 1,038 972 1,636 Foreign Ownership Limit No Limit Appropriations (4) (4) (5) (6) Net Attributable Income 273 290 336 401 Major Shareholders TMG RE & Tourism Investment 50.3% Cash Flow Statement CF from Operations 2,583 2,401 1,721 1,727 CF from Investments (768) (973) (1,010) (1,128) CF from Finance & Non Operating CF (839) (512) (732) (835)

Source: TMG Holding, EFG Hermes estimates Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 60 61 JORDAN

HIKMA PHARMACEUTICALS 64 Year-end December 2013a 2014a 2015e 2016f 2017f

Nominal GDP (USD bn) 33.6 35.9 37.6 38.1 39.7 Real GDP growth (%) 2.8 3.1 2.4 2.7 3.0 CPI inflation, annual average (%) 4.8 2.9 (0.5) 2.0 2.5 Current account balance (USD bn) (3.5) (2.6) (3.3) (3.1) (3.9) Current account balance (% of GDP) (10.4) (7.3) (8.9) (8.2) (9.8) Fiscal balance (USD bn) (1.8) (0.8) (1.3) (1.2) (1.3) Fiscal balance (% of GDP) (5.5) (2.3) (3.5) (3.2) (3.3) Population (mn) 6.6 6.7 6.9 7.0 7.2

Source: Central Bank of Jordan, Ministry of Finance, and EFG Hermes estimates Share Price Performance Relative to FTSE 100 INDEX (Rebased) HIKMA PHARMACEUTICALS www.hikma.com 3,100.0 Hikma Pharmaceuticals (GBp) FTSE 100 INDEX JORDAN 2,700.0 Healthcare BUSINESS DESCIPTION 2,300.0 Hikma Pharmaceuticals is a leading drug producer of branded generics and in-licensed patented products (40% of 2015 revenue), specialised generic injectable products (49%), and non-injectable generic products (10%). The 1,900.0 company has a global presence with 27 manufacturing facilities, with its core operations in the MENA region (46% of QUESTIONS group revenue), mainly focused on branded generics, and the United States (48% of group revenue), mainly focused on generic injectable products along with a presence in Europe and the rest of the world (6%)operating in generics. 1,500.0 Hikma is the fifth largest manufacturer in MENA. In the US, the company’s growth came from the acquisition of Baxter Health’s injectable business in 2011 and Badford laboratories in 2014, and with the inclusion of the company’s 1. Which markets or segments do you believe will achieve the highest growth in the next three years? acquisition of Roxane, which was finalised in 2016, Hikma is now the sixth largest generic company in the US by value. Hikma is listed on the London Stock Exchange, and has a secondary GDR listing on NASDAQ Dubai. 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 2. How are you dealing with FX shortages in Egypt, were you able to increase prices? INVESTMENT THESIS (USD) Hikma’s management is well spread amongst its distinct business operations and markets, this gives it the Valuation Statistics 2013a 2014a 2015a necessary flexibility to establish targets and growth strategies to meet the specific needs of its operations that span EPS 1.08 1.40 1.27 3. How flexible are you in terms of pricing in MENA markets vs US markets? distinct markets with diverse attributes and dynamics. Hikma undertook the acquisition of 98% of EIMC United DPS 0.20 0.22 0.32 Pharmaceuticals (“EUP”), a pharmaceutical manufacturing company specialising in oncology products, late in 2015. BVPS 5.14 6.02 6.69 In addition, Hikma is in the process of building a local manufacturing facility in Kazakhstan, with the aim to serve Russia and neighbouring CIS countries. On the injectable front, Hikma expects to see growth from the transfer of 4. How do you plan on integrating West Ward Colombus into your business lines? equipment and machines from the Ben Venue facility, a company Hikma exited in late 2015, to the company’s US and P/E (x) 27.6 21.2 23.5 European facilities, while the generic segment should continue to grow on the consolidation of West Ward Colombus Dividend Yield 0.7% 0.7% 1.1% (Roxane previously). Hikma maintains its revenue guidance for 2016 of USD2-2.1bn in constant currency, which P/BV (x) 5.8 4.9 4.4 5. How much potential growth do you see from penetrating the Russian market through the planned Kazakhstan plant? factors in ten months of consolidation of West-Ward Colombus. FCF Yield 4.1% 5.1% 4.0% EV / EBITDA (x) 17.2 15.4 16.1 6. What is the impact of devaluating currencies in MENA, for raw material imports and finished good exports? Key Performance Ratios 2013a 2014a 2015a Revenue Growth 23.1% 9.1% -3.3% Financial Statements - December Year End (USD mn) EBITDA Margin 31.3% 31.8% 31.5% Balance Sheet 2013a 2014a 2015a EBIT Margin 25.8% 27.0% 26.5% Current Assets 897 1,013 1,360 Effective Tax Rate -27.5% -22.1% -20.1% Net Fixed Assets 443 514 507 Intangibles & Others 589 724 730 ROAE 22.5% 24.7% 19.6% Total Assets 1,929 2,251 2,597 ROAIC 24.9% 25.5% 20.2% Current Liabilities (Including Debt) 586 841 592 DPO 18.6% 15.7% 25.3% Long-Term Liabilities (Including Debt) 309 194 653 Total Net Worth 1,017 1,197 1,337 Net Debt (Cash) / Equity (x) 0.26 0.23 0.13 Minority Interest 17 19 15 Net Debt (Cash) / EBITDA (x) 0.64 0.59 0.39 Total Equity & Liabilities 1,929 2,251 2,597 Net Debt 274 282 175 Company and Stock Data Price (GBp) 2287.00 on 21 August 2016 Income Statement Bloomberg / Reuters HIK.LN / N/A Revenue 1,365 1,489 1,440 (mn) (mn) EBITDA 427 474 454 MKT Cap / Shares GBp548,706 / 240 EBIT 352 402 381 3M ADVT (mn) USD22.6 EBT 298 362 318 Float 58% Net Income 212 278 252 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations 302 391 320 Darhold Limited 24% CF from Investments (117) (346) (165) Boehringer Ingelheim 17% CF from Finance & Non Operating CF (194) 67 118 Capital Group Companies 7%

Source: Hikma Pharmaceuticals, EFG Hermes, and Bloomberg

Tarek El-Shawarby Adham El Badrawy INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 64 65 KUWAIT

AGILITY 68 Year-end December 2013a 2014a 2015e 2016f 2017f BURGAN BANK 70

72 Nominal GDP (USD bn) 174.0 163.5 114.2 108.3 122.2 KIPCO Real GDP growth (%) 1.1 (1.6) 0.2 0.6 0.6 NATIONAL BANK OF KUWAIT 74 CPI inflation, annual average (%) 2.6 2.9 3.2 2.7 2.5 ZAIN GROUP 76 Current account balance (USD bn) 69.4 53.9 12.9 0.8 5.5 Current account balance (% of GDP) 39.9 33.0 11.3 0.7 4.5 Fiscal balance (USD bn) 61.3 28.1 9.0 (1.3) 4.6 Fiscal balance (% of GDP) 35.2 17.2 7.8 (1.2) 3.7 Population (mn) 4.0 4.1 4.2 4.3 4.5

Source: Kuwait Central Bank, IMF, and EFG Hermes estimates Share Price Performance Relative to KSE Weighted Index AGILITY www.agilitylogistics.com 650.0 Agility (KWd) KSE Weighted Index

600.0 KUWAIT

550.0 Industrials BUSINESS DESCIPTION 500.0 Established in 1979 as a provider of supply chain and freight solutions to business and government customers, Agility transformed itself from a small, state-owned company to a global logistics provider. Agility has a footprint across the 450.0 Middle East (24% of 2015 revenue), Europe (26%), Asia (26%), the Americas (17%) and Africa (8%). The company QUESTIONS 400.0 is divided into two business lines: i) Global Integrated Logistics (GIL; 75% of 1Q16 revenue); and ii) Infrastructure (25%). GIL offers air, ocean and road freight forwarding, warehousing, distribution, and specialised services in project 350.0 logistics, chemical logistics, and fairs and events. Infrastructure covers: i) industrial real estate management; ii) aviation (mainly through National Aviation Services, Kuwait’s first private ground handling company); iii) fuel logistics (through 1. Are there any updates on your interest in buying Al Kharafi National? TriStar); iv) cargo handling consulting; and v) recycling solutions. Agility also has a 21% stake in Qatar listed Gulf ...... Warehousing, one of the country’s largest one-stop-shop logistics and supply chain service providers. Additionally, it 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 owns 24% of Korek Telecom, a major Iraqi mobile operator. 21 Aug 15 2. Are you currently eyeing any investment for your growth plans? ...... (KWD) INVESTMENT THESIS Valuation Statistics 2013a 2014a 2015a 1Q16 (TTM) Agility is targeting to reach an EBITDA of USD800mn (c.240mn KWD) in 2020, more than double 2015’s level, backed EPS 0.040 0.044 0.046 0.049 3. What are the main foundations for the USD800 mn EBITDA target by 2020? by plans of USD1.5bn worth of investments in property and logistics, which the company is planning to finance DPS 0.036 0.033 0.030 0.030 ...... through the company’s resources and debt. The company is currently negotiating with the Saudi government to BVPS 0.763 0.773 0.789 0.792 enter public-private partnerships in the logistics and real estate sectors. Moreover, Agility is interested in the airport and port assets in Kuwait, where the government has announced privatisation plans. Agility’s subsidiary is planning 4. Do you a target gearing ratio as you plan for your expansion? on finalising a USD800m syndicated loan for a joint venture project for the development of a mall in Abu Dhabi P/E (x) 11.9 10.9 10.3 9.8 ...... that it had announced previously in June 2015. Furthermore, Agility expressed in June 2016 that it is in preliminary Dividend Yield 7.6% 6.9% 6.3% 6.3% negotiations for acquiring Kharafi National. Agility’s earnings grew c11% in 1Q16, as net revenue grew 9%, with P/BV (x) 0.6 0.6 0.6 0.6 5. What region has the highest potential to derive growth? Global Integrated Logistics business line net revenue growing 0.6% and saw a 140bps EBITDA margin expansion on improved yields in the freight forwarding business and continued growth in contract logistics. For FY16, Agility is FCF Yield 9.9% 6.2% 12.3% 5.7% ...... projecting a 30% increase in EBITDA and a 10% increase in revenue. EV / EBITDA (x) 6.7 7.1 6.4 6.1

Key Performance Ratios 2013a 2014a 2015a 1Q16 (TTM) Revenue Growth -3.0% -1.3% -4.0% -5.7% Financial Statements - December Year End (KWD mn) EBITDA Margin 5.9% 5.6% 6.6% 6.9% Balance Sheet 2013a 2014a 2015a 1Q16a (TTM) EBIT Margin 3.8% 3.4% 4.2% 4.5% Current Assets 497 499 438 436 Effective Tax Rate -15.4% -14.6% -12.5% -12.5% Net Fixed Assets 196 203 218 252 Intangibles & Others 719 750 807 811 ROAE 5.2% 5.6% 5.8% 5.9% Total Assets 1,412 1,452 1,462 1,499 ROAIC 5.4% 4.8% 5.4% 5.6% Current Liabilities (Including Debt) 417 448 432 428 DPO 90.3% 75.3% 64.7% 61.5% Long-Term Liabilities (Including Debt) 98 93 99 134 Net Debt (Cash) / Equity (x) (0.09) (0.21) (0.19) (0.17) Total Net Worth 878 889 907 911 Minority Interest 19 22 24 26 Net Debt (Cash) / EBITDA (x) (1.02) (2.48) (2.08) (1.75) Total Equity & Liabilities 1,412 1,452 1,462 1,499 Net Debt (82) (189) (178) (156) Company and Stock Data Price (KWd) 480.00 on 21 August 2016 Income Statement Bloomberg / Reuters AGLTY KK / AGLT.KW Revenue 1,376 1,357 1,303 1,284 MKT Cap (mn) / Shares (mn) KWd581,685/1,212 EBITDA 81 76 85 89 3M ADVT (mn) USD1.4 EBIT 52 47 54 58 Float 46% EBT 63 68 67 69 Foreign Ownership Limit No Limit Net Income 46 51 53 55 Major Shareholders Cash Flow Statement National Real Estate 22% CF from Operations 76 60 100 104 Public Institution for Social Security 21% CF from Investments (40) (9) (45) (89) CF from Finance & Non Operating CF (48) (41) (44) (46)

Source: Agility, EFG Hermes, and Bloomberg Wafaa Baddour, CFA Adham El Badrawy INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 68 69 Share Price Performance Relative to KSE Weighted Index BURGAN BANK FAIR VALUE KWD0.37 RATING NEUTRAL www.burgan.com 0.450 Burgan Bank (KWD) KSE Weighted Index KUWAIT 0.400 Financials INVESTMENT THESIS 0.350 Burgan Bank, a 58%-owned subsidiary of KIPCO (directly and indirectly), is a mid-sized Kuwait-based bank, with an estimated 15% lending market share. Burgan bought, in 2008-10, commercial banking operations in Algeria, Iraq 0.300 and Tunisia, which we believe is a key positive valuation driver for the stock due to Kuwait’s limited long-term growth QUESTIONS opportunities, primarily in the retail sector. Burgan also bought a bank in Turkey in 2012. NPLs should continue to trend down in the short term, but we believe earnings could offer downside risks as the central bank is asking banks 0.250 to build provisioning buffers 1. After the disposal of Jordan Kuwait Bank last December, are you looking into other capital-raising plans, or do you think that your capital position will be enough to sustain growth in risk-weighted assets in 2016-17? VALUATION & RISKS 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 ...... We derive our FV using a discounted equity cash flow (DECF) methodology. We calculate equity cash flows by subtracting the amount required to finance growth in risk-weighted assets from our net income estimates (a proxy for cash flows) so that the capital adequacy ratio is maintained at a 12% target level. We use our profit and balance sheet 2. Several Kuwait banks have NPL coverage ratios which are well above of 200%; however, NPL coverage for Burgan Bank, when taking into account loan loss provisions (KWD) growth forecasts for eight years and calculate the terminal value for the business at the end of our forecast period, Valuation Statistics 2015a 2016e 2017e 2018e and gross loans, is significantly lower. Do you think that the Central Bank would encourage all banks to move to higher NPL coverage ratios, and in turn, these based on a terminal perpetuity of 3.5%. We use a discount rate of 12%, which is a weighted average of Kuwait and EPS 0.032 0.027 0.028 0.030 precautionary provisions will continue to be a key element of banks’ earnings in the next few years? DPS 0.018 0.011 0.012 0.012 Burgan’s key foreign markets. Investment risks include higher-than-expected provisioning, due to CBK requirements ...... for counter-cyclical provisions. Growth could surprise on the downside as CET1 capital is tight. BVPS 0.288 0.287 0.295 0.304

P/E (x) 10.4 12.4 11.7 10.9 3. What are the strengths of the Burgan Bank franchise in the domestic market? How is Burgan Bank domestic focus different to that of a bank like NBK? Does Burgan Dividend Yield 5.5% 3.4% 3.5% 3.8% Bank’s management see a strong pipeline of lending activity driven by government investment in 2016-17? P/BV (x) 1.1 1.1 1.1 1.1 Mkt Cap / Deposits 17.5% 16.5% 15.2% 13.9% 4. Can you describe key milestones reached at Burgan Bank Turkey? (with regard to cost-to-income ratio, funding costs, revenue generation at the branches). How do you see the outlook for growth and profitability for Burgan Bank Turkey in 2016? ROAE 10.7% 9.2% 9.7% 10.1% ROAA 0.9% 0.8% 0.8% 0.8% ......

Key Forecast Drivers 2015a 2016e 2017e 2018e 5. Have you seen any impact of government spending on corporate lending demand in Kuwait in 2015/16? Growth in Loans -8.5% 7.8% 8.2% 7.6% ...... (KWD mn) Financial Statements - December Year End Growth in Deposits -17.7% 6.0% 8.0% 10.0% Balance Sheet 2015a 2016e 2017e 2018e Loans / Deposits 103.5% 105.3% 105.5% 103.1% 6. What is your strategy on the retail segment in Kuwait? The bank’s retail lending market share is lower than the bank’s overall lending market share. Do you have any Growth in Net Interest Inc. 5.9% 7.4% 4.3% 7.5% Cash & Central Bank 1,375 1,258 1,226 1,283 plans to increase your share of the retail market? Growth in Non-Interest Inc. 23.6% -2.1% 7.7% 4.2% Interbank Assets 575 638 689 744 ...... Loans (Net) 4,012 4,325 4,677 5,032 Net Interest Spread 2.10% 2.32% 2.32% 2.34% Financial Investments 570 599 635 666 Net Interest Margin 2.38% 2.67% 2.67% 2.69% Fixed & Other Assets 293 300 306 313 Cost / Income 46.5% 47.8% 48.9% 49.2% Total Assets 6,825 7,119 7,533 8,039 NPL Ratio 4.1% 4.1% 4.3% 4.4% Due to Banks 1,702 1,725 1,774 1,756 Customer Deposits 3,874 4,107 4,435 4,879 NPL Coverage Ratio 92.6% 112.3% 120.9% 131.8% Bonds & Long-Term Loans 218 318 312 305 Capital Adequacy Ratio 15.6% 17.0% 16.3% 15.7% Dividend Payable & Other Liabilities 240 175 194 254 Total Liabilities 6,034 6,324 6,715 7,194 Company and Stock Data Minority Interest 56 62 70 79 Price (KWD) 0.33 on 21 August 2016 Shareholders' Equity & Other Capital 735 733 748 766 Total Shareholders' Equity & Liabilities 6,825 7,119 7,533 8,039 Bloomberg / Reuters BURG KK / BURG.KW MKT Cap (mn) / Shares (mn) KWD676 / 2,049 Income Statement 3M ADVT (mn) USD0.7 Net Interest Income 157 168 175 188 Float 32% Non-Interest Income 91 90 96 100 Total Banking Income 248 258 272 289 Foreign Ownership Limit 49% Operating Expense (115) (123) (133) (142) Major Shareholders Total Provisions (59) (56) (55) (56) Other Income/Expense 24 - - - Kuwait Projects Company (Holding) 41% Income before Taxes 98 78 84 90 United Gulf Bank 17% Net Income 88 71 76 82 Minority Interest & Cost of Tier-1 Bond (23) (17) (18) (19) Net Attributable Income 65 54 58 62

Source: Burgan Bank, EFG Hermes estimates Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 70 71 Share Price Performance Relative to KSE Weighted Index KIPCO www.kipco.com 650.0 KIPCO (KWd) KSE Weighted Index

650.0 KUWAIT

600.0 Financials BUSINESS DESCIPTION 550.0 Kuwait Investment Projects Company (KIPCO) is a Kuwait based investment holding company with a diversified portfolio of assets primarily in the MENA region with AUMs of cUSD32 billion (as of 31 Dec. 2015). The group’s 500.0 operations include commercial banking (66% of 2015 revenue), media (2%), insurance (1%), hospitality & real estate 450.0 QUESTIONS (11%), AMIB (8%), industrial (8%) and others (4%). Through its core companies, subsidiaries and affiliates, KIPCO also has interests in the education and healthcare sectors. KIPCO’s revenues are derived through its subsidiaries, 400.0 which are mostly publicly traded. In commercial banking the most significant asset is Burgan Bank (c65%-owned). For the media segment, KIPCO owns c61% effective stake in Orbit Showtime Network (OSN), MENA’s leading Pay 1. OSN offers the most significant opportunity for growth in the company, what will drive this growth? How significant do you see this business segment becoming TV operator with c50% market share. Other key investments include Gulf Insurance (c46%-owned) and United Real (revenue, earnings, margin targets)? Are there plans to eventually list OSN? Estate Co. (c71%). Asset Management and Investment Banking (AMIB) services are offered through United Gulf Bank ...... 21 Feb 16 21 Nov 15 21 May 16 21 Aug 16 (c97%) and KAMCO (c86%). All holdings are market leaders’ in their respective spaces, in line with the company’s 21 Aug 15 strategy to invest in market-dominating companies. 2. KIPCO has expressed interest in growing its presence in healthcare and education in MENA. What opportunities is the company currently looked into? (KWD) INVESTMENT THESIS Valuation Statistics 2013a 2014a 2015a 1H16 (TTM) ...... Earlier in 2015, the company reiterated plans to double its 2014 net profit figure in four years (2018) through earnings EPS 0.027 0.031 0.036 0.039 growth across core companies, particularly in its the financial services and media sectors, in addition to a lower cost DPS 0.019 0.025 0.025 NA 3. How does the company plan to double its 2014 earnings by 2018 as announced? of debt. For 2016e, the company is targeting to achieve high-single-digit revenue growth. The company seeks to ...... continue investing in engines of growth (ROE 15%+) and diversifying revenue streams. OSN is KIPCO’s primary value BVPS 0.388 0.447 0.484 0.463 driver and a main investment attraction (11% revenue growth in 2015), especially as all the other major investments are listed. OSN’s growth potential lies in the under-penetration of the service in the region, where pay TV/household 4. How are the company’s investment banking and asset management businesses (UGB and KAMCO) doing? P/E (x) 20.2 17.6 15.3 14.2 stands at c10% in MENA versus c80% for India and c55% in Latin America. OSN controls a 50% market share with ...... a subscriber base of c1million out of over 50 million households in MENA. Earlier this year, the company successfully Dividend Yield 3.5% 4.5% 6.7% NA raised USD500mn under its USD3bn its EMTN programme launched in 2006. KIPCO’s FY2015 earnings rose 15% to P/BV (x) 1.0 0.8 0.8 0.8 reach KWD54 million while its top line grew a tamer 4% - the strongest top line growth was in insurance (+18%), media (+10%) and hospitality and real estate (11%). However, the most sizeable contributor remained commercial EV / EBITDA (x) 9.9 8.3 8.4 7.9 banking (+4% Y-o-Y).

Key Performance Ratios 2013a 2014a 2015a 1H16 (TTM) Revenue Growth 25.6% 12.2% 5.2% 4.5% Financial Statements - December Year End (KWD mn) EBITDA Margin 59.5% 60.8% 57.6% 59.1% Balance Sheet 2013a 2014a 2015a 1H16 (TTM) EBIT Margin 55.6% 57.1% 53.8% 55.3% Cash & Due from Banks 1,957 2,145 2,270 2,408 Loans (Net) 4,334 4,765 4,729 5,042 Effective Tax Rate -22.9% -15.8% -13.2% -13.6% Financial Investments 494 479 582 539 ROAE 19.1% 16.6% 16.1% 17.6% Investments in Assoc. & Property 933 1,002 1,012 1,042 DPO 69.9% 79.9% 69.5% N/A Fixed & Other Assets 919 937 996 999 Total Assets 8,638 9,328 9,590 10,029 Net Debt (Cash) / Equity (x) 0.87 1.08 1.33 1.48 Due to Banks 1,582 1,836 2,009 1,997 Net Debt (Cash) / EBITDA (x) 1.60 1.97 2.43 2.40 Deposits 4,730 4,842 4,850 5,144 Bonds & Long-Term Loans 864 1,024 1,131 1,328 Company and Stock Data Dividend Payable & Other Liabilities 347 352 340 331 Price (KWd) 550.00 on 21 August 2016 Total Liabilities 7,523 8,054 8,330 8,800 Bloomberg / Reuters KPROJ KK / KPRO.KW Minority Interest 554 615 608 610 MKT Cap (mn) / Shares (mn) KWd810,465 / 1,474 Shareholders' Equity 560 659 652 619 3M ADVT (mn) USD0.8 Total Shareholders' Equity & Liabilities 8,638 9,328 9,590 10,029 Float 37% Foreign Ownership Limit No Limit Income Statement Revenue 513 598 621 646 Major Shareholders EBITDA 305 363 358 381 Al Futtooh Holding 45% EBIT 285 341 334 357 Kuwait Projects Co 18% EBT 109 104 124 118 Odyssey Reins Co 3% Net Income 40 46 53 56

Source: KIPCO, EFG Hermes, and Bloomberg Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 72 73 Share Price Performance Relative to KSE Weighted Index NATIONAL BANK OF KUWAIT FAIR VALUE KWD0.77 RATING BUY www.nbk.com 0.82 National Bank of Kuwait (KWD) KSE Weighted Index 0.78 KUWAIT 0.74 0.70 Financials INVESTMENT THESIS 0.66 National Bank of Kuwait (NBK) is Kuwait’s largest bank by assets and market capitalisation. NBK has very strong links 0.62 with the Kuwait government despite being primarily owned by private Kuwaiti investors. NBK enjoys a domestic market share of over 30% in most business segments. Its core franchise has traditionally been the large corporate and 0.58 QUESTIONS high net worth retail segments in Kuwait, but NBK is a full-service bank. While we believe that NBK will remain the 0.54 dominant player in Kuwait, it will be increasingly challenging for the bank to maintain its current market share given 0.50 strong competition from medium-sized banks. We therefore view positively the bank’s regional expansion strategy. NBK is in our view Kuwait’s strongest domestic franchise and has a lower credit risk profile versus most domestic peers. 1. What is NBK management’s view on precautionary provisions going forward? Will they continue to be at the same level as in 2015? Has the Central Bank always requested this type of provisions, or has it started post global financial crisis? If the latter is the case, is the Central Bank perhaps concerned about specific customers that 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 banks are exposed to in Kuwait, or are these just countercyclical provisioning requirements? VALUATION & RISKS ...... We derive our fair value (FV) for NBK using a discounted equity cash flow (DECF) methodology. We calculate equity cash flows by subtracting from our net income estimates (a proxy for cash flows) the amount required to finance (KWD) growth in risk-weighted assets so that the capital adequacy ratio is maintained at a 12% target level. We use our Valuation Statistics 2015a 2016e 2017e 2018e 2. When do you expect government’s project activity to trickle down to loan growth? So far we have seen a slowdown in loan growth in 2016 when compared to 2015 profit and balance sheet growth forecasts for eight years and calculate the terminal value for the business at the EPS 0.052 0.053 0.058 0.066 ...... end of the forecast period based on a terminal perpetuity of 3%. We use a CAPM model to arrive at our discount DPS 0.030 0.027 0.029 0.033 rate of 10.5%. We use a risk-free rate of 4% and an equity risk premium of 6.5%. Key upside risks to our estimates BVPS 0.493 0.484 0.508 0.536 include higher-than-expected growth in corporate lending should the implementation of the Kuwait government’s 3. Are you seeing any signs of deteriorating liquidity conditions in the Kuwait banking sector? investment plan be successful. P/E (x) 11.3 11.2 10.2 9.0 ...... Dividend Yield 5.1% 4.6% 4.9% 5.6% P/BV (x) 1.2 1.2 1.2 1.1 4. What is the cushion over minimum regulatory CET1 and total CAR that you wish to maintain? Mkt Cap / Deposits 27.6% 25.6% 23.7% 21.9% ......

ROAE 10.8% 11.1% 11.6% 12.5% ROAA 1.2% 1.2% 1.2% 1.3% 5. Do you have inorganic expansion plans, and which markets could be of interest? ...... Key Forecast Drivers 2015a 2016e 2017e 2018e Growth in Loans 13.8% 9.7% 10.5% 8.9% 6. Are you concerned about any particular sector in Kuwait which could lead to credit quality deterioration for the bank or for the banking system? (KWD mn) Financial Statements - December Year End Growth in Deposits 7.1% 7.5% 8.0% 8.4% ...... Balance Sheet 2015a 2016e 2017e 2018e Loans / Deposits 112.4% 114.6% 117.3% 117.8% Cash & Central Bank 3,481 3,241 3,010 3,339 Growth in Net Interest Inc. 13.0% 8.7% 6.2% 7.6% Interbank Assets 1,427 1,711 1,820 1,821 Growth in Non-Interest Inc. 3.6% -2.1% 9.7% 9.6% Loans (Net) 13,551 14,860 16,425 17,883 Net Interest Spread 2.39% 2.39% 2.37% 2.37% Financial Investments 4,061 4,318 4,587 4,889 Net Interest Margin 2.47% 2.48% 2.46% 2.46% Fixed & Other Assets 1,078 1,105 1,125 1,145 Cost / Income 32.2% 32.8% 33.5% 33.8% Total Assets 23,598 25,236 26,967 29,078 NPL Ratio 1.3% 1.3% 1.3% 1.4% Due to Banks 7,306 7,908 8,400 9,106 Customer Deposits 12,059 12,964 14,001 15,177 NPL Coverage Ratio 322.4% 344.3% 357.3% 355.4% Bonds & Long-Term Loans 780 815 825 825 Capital Adequacy Ratio 16.8% 16.3% 15.7% 15.2% Dividend Payable & Other Liabilities 409 373 412 466 Total Liabilities 20,555 22,059 23,638 25,573 Company and Stock Data Minority Interest 224 239 255 273 Price (KWD) 0.59 on 21 August 2016 Shareholders' Equity & Other Capital 2,818 2,938 3,075 3,231 Total Shareholders' Equity & Liabilities 23,598 25,236 26,967 29,078 Bloomberg / Reuters NBK KK / NBKK.KW MKT Cap (mn) / Shares (mn) KWD3,325 / 5,636 Income Statement 3M ADVT (mn) USD4.7 Net Interest Income 530 576 612 658 Float 20% Non-Interest Income 199 194 213 234 Total Banking Income 729 771 825 892 Foreign Ownership Limit 49% Operating Expense (235) (253) (276) (301) Major Shareholders Total Provisions (164) (156) (155) (145) Other Income/Expense - - - - Public Inst for Social Security 5% Income before Taxes 330 362 394 446 Net Income 297 325 355 401 Minority Interest & Cost of Tier-1 Bond (20) (28) (29) (32) Net Attributable Income 276 297 325 369

Source: National Bank of Kuwait, EFG Hermes estimates Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 74 75 Share Price Performance Relative to KSE Weighted Index ZAIN GROUP FAIR VALUE KWD0.49 RATING BUY www.zain.com Zain Group (KWD) KSE Weighted Index 0.40 KUWAIT

0.38 Telecommunication Services INVESTMENT THESIS Mobile Telecommunications Company (Zain Group) now has mostly mature/non-growing cash cow operations 0.35 (Kuwait, Jordan, Bahrain), some growth operators (Sudan, South Sudan, Iraq, and to a lesser extent, Morocco), and Zain Saudi Arabia, following the sale of its African assets in 2009 to India’s Bharti Airtel Group in a USD10.7 0.33 QUESTIONS billion transaction. Afterwards, the company went through a period of uncertainty and lack of clarity in terms of strategy, and major shareholder, the Kharafi group, attempted to sell the operator to UAE’s Etisalat. The sale talks were scrapped and now, after the dust has settled, a new management team set a clear strategy, focus on mostly on 0.30 the data segment in existing operations. Execution is the key now, in our view. Our fair value (FV) for Zain Group is 1. What are the updates on Zain Iraq’s various legal disputes? Is Zain planning to seek international arbitration in any of them? Given the freeze on Zain Iraq’s bank KWD0.488/share, and we have a Buy rating on the stock. accounts, how does the company fund its opex? ...... 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 VALUATION & RISKS We value Zain Group using a sum-of-the-parts (SOTP) discounted cash flow (DCF) model, with 42% of the value 2. Why would Zain Group be interested in entering the Egyptian market as a fourth or fifth player, given the relative saturation of the market? Is Zain interested in any other (KWD) generated from the Kuwaiti operation, followed by Sudan with 18%. The contribution of the Iraqi operation to our Valuation Statistics 2015a 2016e 2017e 2018e markets? valuation has significantly dropped due to a challening macroeconomic evnironment on the back of the ongoing EPS 0.040 0.040 0.044 0.045 ...... conflict. The company has worked on an internal restructuring to adapt to the challening operations accross its DPS 0.030 0.030 0.030 0.030 portfolio, but conflicts (Iraq, Sudan) and competition (Kuwait, Jordan, Bahrain) have taken their toll on the company’s BVPS 0.395 0.406 0.420 0.435 3. Margins were high in 2Q16, the highest since 4Q10; what is the reason behind this and is it sustainable? How much room for cost cutting does management see across performance. Risks to our valuation include: i) intensified competition in Iraq, ii) lack of clarity regarding the fate of Zain in Sudan and South Sudan, as the political and economic conditions of the two countries remain unstable, and all operations? P/E (x) 8.34 8.16 7.56 7.29 iii) continued weak operational performance at the Saudi operation level...... Dividend Yield 9.1% 9.1% 9.1% 9.1% P/BV (x) 0.8 0.8 0.8 0.8 4. Are there any plans for further capital restructuring at Zain KSA? In the worst case scenario of Zain KSA’s default, where will the Group obtain the funding to honor its FCF Yield 3.5% 11.8% 16.6% 17.7% guarantees over Zain KSA’s debts? EV / EBITDA (x) 4.7 4.8 4.8 4.8 EV / Sub. (KWD) 77.2 71.8 68.5 66.5 ......

Key Forecast Drivers 2015a 2016e 2017e 2018e 5. How much progress has been made in the tower sale across your markets and when should investors expect it to be complete? Total Subscribers (mn) 31 33 35 36 ...... (KWD mn) Financial Statements - December Year End Revenue Growth -6.2% -3.5% 0.7% 1.0% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 43.8% 44.6% 44.0% 43.6% Current Assets 795 544 576 600 EBIT Margin 25.1% 24.6% 23.7% 23.7% Net Fixed Assets 902 958 1,020 1,066 Effective Tax Rate -17.6% -15.1% -15.1% -15.1% Intangibles & Others 1,798 1,715 1,611 1,519 ROAE 9.7% 10.1% 10.6% 10.6% Total Assets 3,495 3,217 3,208 3,184 ROAIC 10.9% 10.3% 9.9% 10.2% Current Liabilities (Including Debt) 975 886 879 870 Long-Term Liabilities (Including Debt) 792 557 496 416 DPO 75.8% 74.2% 68.7% 66.3% Total Net Worth 1,543 1,583 1,637 1,696 Net Debt (Cash) / Equity (x) 0.67 0.61 0.55 0.48 Minority Interest 185 191 197 203 Net Debt (Cash) / EBITDA (x) 2.31 2.23 2.06 1.86 Total Equity & Liabilities 3,495 3,217 3,208 3,184 Net Debt 1,154 1,091 1,002 906 Company and Stock Data Price (KWD) 0.33 on 21 August 2016 Income Statement Revenue 1,138 1,098 1,105 1,117 Bloomberg / Reuters ZAIN KK / ZAIN.KW (mn) (mn) EBITDA 499 489 487 487 MKT Cap / Shares KWD1,426 / 4,323 EBIT 286 270 262 264 3M ADVT (mn) USD1.3 EBT 202 195 210 218 Float 54% Net Income 155 158 171 177 Foreign Ownership Limit No Limit Appropriations (0) (0) (0) (0) Net Attributable Income 154 158 170 177 Major Shareholders Kuwait Investment Authority 25% Cash Flow Statement Al Khair National Company 11% CF from Operations 439 407 452 452 CF from Investments (370) (224) (215) (205) CF from Finance & Non Operating CF (63) (412) (208) (228)

Source: Zain Group, EFG Hermes estimates Omar Maher Karim Riad INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 76 77 MOROCCO

ATTIJARIWAFA BANK 80 Year-end December 2013a 2014a 2015e 2016f 2017f BMCE BANK 82 84 Nominal GDP (USD bn) 107.1 109.9 100.0 101.8 105.4 DOUJA PROMOTION GROUPE ADDOHA 86 Real GDP growth (%) 4.7 2.4 4.2 0.7 3.6 RÉSIDENCES DAR SAADA CPI inflation, annual average (%) 1.9 0.4 1.6 0.9 1.2 Current account balance (USD bn) (7.9) (6.2) (1.9) 0.9 0.2 Current account balance (% of GDP) (7.3) (5.7) (1.9) 0.9 0.2 Fiscal balance (USD bn) (5.4) (5.1) (4.2) (3.4) (2.9) Fiscal balance (% of GDP) (5.0) (4.7) (4.2) (3.3) (2.8) Population (mn) 33.0 33.3 33.7 34.1 34.4

Source: Bank Al-Maghrib, Office of Planning, and EFG Hermes estimates Share Price Performance Relative to MASI (Rebased) ATTIJARIWAFA BANK FAIR VALUE MAD374.3 RATING NEUTRAL www.attijariwafabank.com 380.0 Attijariwafa Bank (MAD) MASI 370.0 MOROCCO 360.0 Financials 350.0 INVESTMENT THESIS Attijariwafa Bank (ATW) is Morocco’s largest bank by assets with c26% lending market share. ATW’s strongest 340.0 franchise has traditionally been within the large corporate segment, however, it has implemented an aggressive 330.0 retail banking strategy following the 2003 merger of its predecessors, Wafa Bank and BCM. One of ATW’s main QUESTIONS competitive advantages is its portfolio of specialised subsidiaries, mainly in consumer finance, mortgages and leasing, 320.0 where it has leading market shares. With a loan-to-GDP ratio of c85% in Morocco, there remain opportunities for 310.0 long-term growth, although the market is reaching maturity within the bankable population. ATW has expanded into Western and Northern African countries, with subsidiaries/representative offices currently in countries including 1. Loan growth in Morocco continues to be subdued mostly on sluggish corporate lending demand in the country. Do you see any trigger for a pick-up in loan growth in 2016? Tunisia, Senegal, Cameroon, Gabon, Congo, Ivory Coast and Mali, amongst others. ATW trades at higher multiples ...... than MENA banks, partly due to the existence of capital controls in Morocco. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Credit quality has deteriorated further in 2016, albeit at a slower pace than in 2015. What is your view on asset quality going forward? Do you expect any particular VALUATION & RISKS sector to continue to drive NPLs up in 2016 (tourism, real estate developers…)? (MAD) We derive our fair value (FV) by using the average of the our discounted equity cash flow model (DECF) value per Valuation Statistics 2015a 2016e 2017e 2018e ...... share and our sum-of-the parts value per share. We calculate equity cash flows by subtracting from our net income EPS 22.12 23.64 25.17 26.60 DPS 11.00 11.00 11.50 12.00 estimates (a proxy for cash flows) the amount required to finance growth in risk-weighted assets so that the capital 3. Moroccan Central Bank has cut its benchmark rate in March 2016 by 25bps to 2.25%, how do you see the impact of this rate cut on net interest margins and on capital adequacy ratio is maintained at a 10% target level. We use our profit and balance sheet growth forecasts for eight BVPS 170.53 187.33 200.99 215.59 years and calculate the terminal value for the business at the end of the forecast period based on a terminal perpetuity gains in the bond portfolio in 2016? How quickly can you pass on lower rates on the liabilities side? And is there a fast re-pricing on the asset side? of 5.5%. We use a CAPM model to arrive at our discount rate of 10.1%. We use a risk-free rate of 3.6% and an P/E (x) 16.0 15.0 14.1 13.3 ...... equity risk premium of 6.5%. Downside risks to our estimates include a deterioration in credit quality due to further Dividend Yield 3.1% 3.1% 3.2% 3.4% weakening of the corporate sectors linked to external demand, with Morocco being geared particularly to France P/BV (x) 2.1 1.9 1.8 1.6 4. How do you expect the increase in the reserve requirement ratio from 2% to 4% set by the central bank last June to impact net interest spreads going forward? and Spain. Mkt Cap / Deposits 26.3% 25.2% 24.0% 22.8% ......

ROAE 13.2% 13.1% 13.0% 12.8% ROAA 1.1% 1.1% 1.1% 1.1% 5. Which countries in Sub-Saharan Africa are fast growing in terms of loan growth and revenues? What countries are under stress? What do you expect loan growth/ earnings growth to be in the international segment in 2016-17? Key Forecast Drivers 2015a 2016e 2017e 2018e ...... Growth in Loans -0.8% 6.9% 5.7% 6.7% (MAD mn) Financial Statements - December Year End Growth in Deposits 6.5% 4.6% 5.0% 5.0% 6. Do you plan to expand your geographical footprint in Africa going forward? Any expansion to English-speaking Africa in sight? Balance Sheet 2015a 2016e 2017e 2018e Loans / Deposits 92.1% 94.2% 94.9% 96.4% ...... Cash & Central Bank 12,580 11,481 13,562 15,822 Growth in Net Interest Inc. 3.4% 6.7% 6.9% 6.4% Interbank Assets 21,180 20,895 21,940 21,265 Growth in Non-Interest Inc. -9.8% 9.4% 4.1% 5.1% Loans (Net) 252,919 270,358 285,876 305,139 Net Interest Spread 2.73% 2.76% 2.80% 2.80% 7. Can you shed some color on Tunisian Dinar depreciation impact on your Tunisian operations contribution to the group? Financial Investments 101,193 109,019 114,450 119,864 Net Interest Margin 2.99% 3.03% 3.08% 3.10% ...... Fixed & Other Assets 23,206 23,850 24,170 24,497 Cost / Income 46.4% 46.5% 47.0% 47.4% Total Assets 411,079 435,603 459,997 486,588 NPL Ratio 7.1% 7.2% 7.1% 6.9% Due to Banks 32,676 34,728 36,455 38,268 8. Is there any update with regard to SNI selling part of its stake in Attijariwafa bank? Customer Deposits 274,515 287,022 301,373 316,441 NPL Coverage Ratio 71.9% 71.5% 74.3% 76.9% ...... Bonds & Long-Term Loans 25,100 28,134 30,834 33,534 Capital Adequacy Ratio 12.5% 12.8% 13.4% 13.5% Dividend Payable & Other Liabilities 39,797 41,644 43,849 47,193 Total Liabilities 372,088 391,527 412,511 435,436 Company and Stock Data Minority Interest 4,284 5,950 6,579 7,272 Price (MAD) 355.00 on 21 August 2016 Shareholders' Equity & Other Capital 34,707 38,126 40,908 43,879 Total Shareholders' Equity & Liabilities 411,079 435,603 459,997 486,588 Bloomberg / Reuters ATW MC / ATW.CS MKT Cap (mn) / Shares (mn) MAD72,252 / 204 Income Statement 3M ADVT (mn) USD3.2 Net Interest Income 11,401 12,166 13,008 13,847 Float 14% Non-Interest Income 7,596 8,313 8,654 9,096 Total Banking Income 18,997 20,480 21,663 22,943 Foreign Ownership Limit No Limit Operating Expense (8,811) (9,533) (10,181) (10,874) Major Shareholders Total Provisions (2,217) (2,235) (2,200) (2,246) Other Income / Expense 135 84 100 110 SNI 48% Income before Taxes 8,104 8,795 9,381 9,934 MCMA-MAMDA 8% Net Income 5,300 5,673 6,051 6,407 Minority Interest (798) (862) (929) (993) Net Attributable Income 4,502 4,811 5,122 5,414

Source: Attijariwafa Bank, EFG Hermes estimates Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 80 81 Share Price Performance Relative to MASI (Rebased) BMCE BANK FAIR VALUE MAD225.6 RATING NEUTRAL www.bmcebank.ma 239.0 BMCE Bank (MAD) MASI 232.0 MOROCCO 225.0 Financials 218.0 INVESTMENT THESIS Banque Marocaine pour le Commerce Extérieur (BMCE) is Morocco’s third largest bank by assets, with estimated 211.0 market shares of c14% in loans and in deposits. The corporate sector has been BMCE’s core business, but the bank 204.0 is now shifting its focus to the retail and SME segments and has expanded strongly its branch network since 2006, QUESTIONS with a target to open 50 branches per year until 2020. BMCE owns well-established subsidiaries in Morocco focusing 197.0 mainly on consumer finance (Salafin) and leasing (Maghrebail). It also has branches in Europe focused on channelling savings from Africans Living Abroad. BMCE has widened its African footprint and owns now a majority stake (75%) 190.0 in Bank of Africa, a pan-African group of sixteen commercial banks, in addition to 32% in Banque de Developpement 1. Loan growth in Morocco remains in low-single digits. What is your view on sector loan growth going forward? Do you see any pick-up in loan growth in 2016? du Mali and 37% in La Congolaise des Banques. Africa now accounts for c49% of revenues and c40% of earnings...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 VALUATION & RISKS 21 Nov 15 2. NPLs continued to increase at the system level in 2016, albeit at a slower pace than in 2015. Do you expect any particular sector to continue to drive NPLs up in 2016 We derive our fair value (FV) by using a discounted equity cash flow (DEFC) methodology. We calculate equity cash flows by subtracting from our net income estimates (a proxy for cash flows) the amount required to finance growth (tourism, real estate developers…)? Shall we expect some stabilization in credit costs this year? (MAD) in risk-weighted assets so that the capital adequacy ratio is maintained at a 9% target level. We use our profit Valuation Statistics 2015a 2016e 2017e 2018e ...... and balance sheet growth forecasts for eight years and calculate the terminal value for the business at the end of EPS 10.90 12.84 15.86 17.44 DPS 5.00 5.50 5.50 6.00 the forecast period based on a terminal perpetuity of 5%, which factors in our view of strong long-term growth 3. Can you shed some color on the drivers of the strong rebound in loan growth of the domestic commercial banking activity in 2015 (+14% Y-o-Y), following a decline in prospects in Africa. We use a CAPM model to arrive at our discount rate of 10.1%. We use a risk-free rate of 3.6% BVPS 89.85 97.19 107.55 118.99 the loan book in 2014? and an equity risk premium of 6.5%. Key upside risks to our estimates include higher-than-expected loan growth in the domestic market, which could drive up our revenue estimates, as well as a faster-than-expected contribution to P/E (x) 18.9 16.0 13.0 11.8 ...... earnings of the African subsidiaries. Dividend Yield 2.4% 2.7% 2.7% 2.9% P/BV (x) 2.3 2.1 1.9 1.7 4. Moroccan Central Bank has cut its benchmark rate in March 2016 by 25bps to 2.25%, how do you see the impact of this rate cut on net interest margins and on capital Mkt Cap / Deposits 20.7% 19.2% 17.9% 16.7% gains in the trading bond portfolio in 2016? ...... ROAE 12.1% 13.2% 14.7% 14.7% ROAA 0.7% 0.8% 0.9% 0.9% 5 How do you expect the increase in the reserve requirement ratio from 2% to 4% set by the central bank last June to impact net interest spreads going forward? Key Forecast Drivers 2015a 2016e 2017e 2018e ...... Growth in Loans 11.7% 5.8% 5.9% 6.9% (MAD mn) Financial Statements - December Year End Growth in Deposits 10.5% 8.0% 7.5% 7.0% 6. Why is the ROE/ROA of BMCE in Morocco below that of its peers ATW and BCP? Balance Sheet 2015a 2016e 2017e 2018e Loans / Deposits 97.2% 95.2% 93.8% 93.7% ...... Cash & Central Bank 10,403 11,166 11,589 12,401 Growth in Net Interest Inc. 10.3% 14.7% 16.2% 9.2% Growth in Non-Interest Inc. -12.7% 4.8% 4.6% 5.4% Interbank Assets 20,971 22,005 23,655 25,111 7. What are the synergies between BMCE Group and its largest African subsidiary Bank of Africa? Loans (Net) 173,280 183,355 194,095 207,568 Net Interest Spread 3.89% 3.74% 3.80% 3.84% Financial Investments 57,173 63,541 70,779 79,095 Net Interest Margin 3.70% 3.83% 4.16% 4.26% ...... Fixed & Other Assets 17,594 18,117 18,763 19,529 Cost / Income 58.7% 56.9% 54.8% 54.6% Total Assets 279,422 298,184 318,882 343,704 NPL Ratio 7.0% 7.2% 7.1% 7.0% 8. Growth expected in Bank of Africa assets and earnings in 2016? Due to Banks 53,223 54,479 58,378 60,175 Customer Deposits 178,255 192,515 206,954 221,441 NPL Coverage Ratio 57.8% 58.9% 61.6% 63.2% ...... Bonds & Long-Term Loans 17,607 19,639 20,139 21,139 Capital Adequacy Ratio 12.3% 14.7% 15.1% 15.7% Dividend Payable & Other Liabilities 9,125 8,560 7,912 12,647 9. BMCE is reportedly partnering with Al Baraka Banking Group to set up an Islamic banking subsidiary in Morocco. When is this subsidiary expected to start operations? Total Liabilities 258,209 275,194 293,383 315,402 Company and Stock Data Minority Interest 5,088 5,547 6,197 6,947 What is your view on the outlook of Participatory banking in Morocco? Do you have any target in terms of market share or earnings? Price (MAD) 206.10 on 21 August 2016 Shareholders' Equity & Other Capital 16,125 17,443 19,302 21,355 ...... Total Shareholders' Equity & Liabilities 279,422 298,184 318,882 343,704 Bloomberg / Reuters BCE MC / BMCE.CS MKT Cap (mn) / Shares (mn) MAD36,987 / 179 Income Statement 3M ADVT (mn) USD0.8 Net Interest Income 8,541 9,798 11,382 12,431 Float 21% Non-Interest Income 3,276 3,433 3,591 3,786 Total Banking Income 11,817 13,230 14,973 16,216 Foreign Ownership Limit No Limit Operating Expense (6,933) (7,523) (8,200) (8,856) Major Shareholders Total Provisions (1,440) (1,619) (1,696) (1,765) Other Income / Expense 172 120 120 120 RMA Watanya 30% Income before Taxes 3,616 4,209 5,197 5,716 Banque Federative du Credit Mutuel 26% Net Income 2,655 3,115 3,846 4,230 CDG 8% Minority Interest (699) (810) (1,000) (1,100) Net Attributable Income 1,956 2,305 2,846 3,130

Source: BMCE Bank, EFG Hermes estimates Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 82 83 Share Price Performance Relative to MASI (Rebased) DOUJA PROMOTION GROUPE ADDOHA www.groupeaddoha.com Douja Promotion Groupe ADDOHA (MAD) 43.0 MASI MOROCCO 39.0

35.0 Real Estate & Hospitality BUSINESS DESCIPTION 31.0 Established in 1988, ADDOHA is a Morocco-based real estate developer and a major player in the social housing space. In 2009, the Group penetrated the high-income segment. The group has presence in a number of Moroccan 27.0 cities, including Casablanca, Ain Aouda, and Rabat. QUESTIONS 23.0

19.0 INVESTMENT THESIS ADDOHA is well-positioned to benefit from the increasing demand in the social housing segment, given the 1. What are the dynamics of the real estate sector in Morocco? Who are the big players? And how is ADDOHA placed within the market? How mature is the mortgage significance of its market share in such an under-penetrated market. On the downside, the company’s balance sheet market in Morocco? What percentage of sales comes from mortgages? is highly-leveraged, which may reflect on the company’s ability to raise more debt, in our view. The stock has offered ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 an attractive dividend yield in the recent years. 21 Nov 15 2. What is ADDOHA’s strategy over the coming three to five years? What are the expected drivers of growth? Valuation Statistics (MAD) 2013a 2014a 2015a ...... EPS 5.33 3.16 2.67 DPS 1.80 2.00 2.00 3. In light of your focus on low- and middle-income segment, are you facing competition from the government’s projects? BVPS 33.56 34.47 35.05 ......

P/E (x) 7.0 11.8 14.0 4. Is there a set policy for dividend distribution? Dividend Yield 4.8% 5.4% 5.4% ...... P/BV (x) 1.1 1.1 1.1 FCF Yield N/A 3.4% 20.5% EV / EBITDA (x) 8.8 14.9 15.4

Key Performance Ratios 2013a 2014a 2015a Revenue Growth 0.3% -25.5% 1.0% Financial Statements - December Year End (MAD mn) EBITDA Margin 24.3% 19.3% 18.4% Balance Sheet 2013a 2014a 2015a EBIT Margin 23.7% 18.9% 17.9% Current Assets 34,004 30,840 27,868 Effective Tax Rate -12.6% -16.1% -17.2% Net Fixed Assets 340 358 237 Intangibles & Others 394 922 881 ROAE 16.1% 8.9% 7.2% Total Assets 34,738 32,121 28,986 ROAIC 11.0% 6.3% 6.2% Current Liabilities (Including Debt) 17,291 14,136 11,906 DPO 33.8% 63.3% 74.9% Long-Term Liabilities (Including Debt) 6,335 6,368 5,097 Net Debt (Cash) / Equity (x) 0.88 0.80 0.63 Total Net Worth 10,825 11,118 11,306 Minority Interest 287 498 678 Net Debt (Cash) / EBITDA (x) 4.25 6.88 5.73 Total Equity & Liabilities 34,738 32,121 28,986 Net Debt 9,771 9,316 7,501 Company and Stock Data Price (MAD) 37.28 on 21 August 2016 Income Statement Bloomberg / Reuters ADH MC / ADH.CS Revenue 9,451 7,036 7,105 MKT Cap (mn) / Shares (mn) MAD12,025 / 323 EBITDA 2,298 1,355 1,308 3M ADVT (mn) USD0.8 EBIT 2,240 1,332 1,273 Float 37% EBT 1,951 1,272 1,193 Foreign Ownership Limit No Limit Net Income 1,682 1,012 853 Major Shareholders Cash Flow Statement Rcar 56% CF from Operations N/A 579 2,485 Sefrioui Anas 6% CF from Investments N/A (144) (31) Blackrock Fund Advis % CF from Finance & Non Operating CF N/A (108) (1,827)

Source: Douja Promotion Groupe ADDOHA, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 84 85 Share Price Performance Relative to MASI (Rebased) RÉSIDENCES DAR SAADA www.espacessaada.com 200.0 Résidences Dar Saada (MAD) MASI MOROCCO 185.0

170.0 Real Estate & Hospitality

BUSINESS DESCIPTION 155.0 Residences Dar Saada SA is a Morocco-based real estate developer. The company has completed projects in a number of cities within Morocco including Casablanca, Oujda, Nouaceur, Skhirat, Berrechid, Fes, Tanger, Agadir and 140.0 Marrakech, with a focus on social housing, which has historically represented around 50% of the company’s revenue. QUESTIONS The company also sells units within the middle-income segment, in addition to villas and land plots. RDS has a land 125.0 bank of 9.3mn sqm, of which 48% is around the Casablanca-Rabat axis, 34% is in the South (Marrakech and Agadir) and 18% is in the North (Tanger, Martil, Oujda and Des). Out of the total land bank, 12% represent finished projects, 110.0 26% is raw, whilst the rest is under development. RDS managed to raise MAD1.13bn (USD128mn) in an initial public 1. What are the dynamics of the real estate sector in Morocco? Who are the big players? And how is RDS placed within the market? How mature in the mortgage market offering (IPO) in December 2014. in Morocco. What percentage of sales comes from mortgages? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 INVESTMENT THESIS RDS offers exposure to the growing low and middle income segment in Morocco. The company enjoys a number of 2. What is RDS’s strategy over the coming three to five years? What are the expected drivers of growth? (MAD) benefits, as part of the incentives adopted by the government starting 2010, which are scheduled to run through Valuation Statistics 2013a 2014a 2015a ...... 2024. These include exemptions from coporate taxes, registration fees and other taxes. We note that the supply of EPS 11.66 15.51 17.17 housing units in the social housing space has dropped in 2013-14, with the drop in authorisations of new projects, DPS 0.00 6.40 6.90 3. In light of your focus on low- and middle-income segment, does the company face competition from the government’s projects? which management sees as an opportunity. The company has a backlog of 15,000 presold units, which are expected BVPS 175.71 132.43 143.53 ...... to be delivered within two years.

P/E (x) 14.5 10.9 9.8 Dividend Yield 0.0% 3.8% 4.1% P/BV (x) 1.0 1.3 1.2 FCF Yield 8.0% N/A N/A EV / EBITDA (x) 17.6 13.5 12.8

Key Performance Ratios 2013a 2014a 2015a Land Bank (mn sqm) 9.3 Financial Statements - December Year End (MAD mn) Revenue Growth 58.2% 62.4% -3.6% Balance Sheet 2013a 2014a 2015a EBITDA Margin 24.7% 32.3% 29.8% Current Assets 6,521 7,791 7,871 EBIT Margin 24.3% 31.9% 29.5% Net Fixed Assets 30 32 30 Effective Tax Rate -13.7% -12.9% -5.1% Intangibles & Others 62 148 158 ROAE 15.8% 14.7% 12.4% Total Assets 6,613 7,971 8,059 ROAIC 8.7% 8.9% 8.1% Current Liabilities (Including Debt) 1,961 1,851 1,816 DPO 0.0% 41.3% 40.2% Long-Term Liabilities (Including Debt) 2,606 2,651 2,482 Net Debt (Cash) / Equity (x) 1.14 0.68 0.59 Total Net Worth 2,047 3,470 3,760 Minority Interest 0 0 0 Net Debt (Cash) / EBITDA (x) 6.20 4.77 4.30 Total Equity & Liabilities 6,613 7,971 8,059 Net Debt 2,341 2,363 2,236 Company and Stock Data Price (MAD) 169.00 on 21 August 2016 Income Statement Bloomberg / Reuters RDS MC / RDS.CS Revenue 1,528 1,534 1,746 MKT Cap (mn) / Shares (mn) MAD4,429 / 26 EBITDA 378 495 520 3M ADVT (mn) USD0.1 EBIT 371 490 515 Float 20% EBT 213 463 474 Foreign Ownership Limit No Limit Net Income 306 406 450 Major Shareholders Cash Flow Statement Groupe Palmeraie Dev 41% CF from Operations (428) N/A N/A B Participations Sar 14% CF from Investments (92) N/A N/A Aabar Investments Pj 8% CF from Finance & Non Operating CF 590 N/A N/A

Source: Résidences Dar Saada, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 86 87 NETHERLANDS

OCI NV 90 Share Price Performance Relative to Euronext 100 (Rebased) OCI NV FAIR VALUE EUR17.00 RATING NEUTRAL www.OCI.nl 31.0 OCI NV (EUR) Euronext 100 NETHERLANDS 25.0 Materials INVESTMENT THESIS 19.0 OCI NV is an integrated low-cost nitrogen fertiliser and chemical producer, with a total capacity in excess of c7.5 million tonnes per annum (mtpa) across Egypt, Algeria, Netherlands and USA. OCI’s capacity will further increase by 13.0 c4mtpa in 2016/ 2017, through its nitrogen fertilisers project in Iowa state (Greenfield project) and its new methanol QUESTIONS project in Beaumont, Texas. The company was a first mover following the success of the shale gas revolution in the US, and expects to have over 5mtpa of fertilisers and chemicals capacity in the US by 2017. We have a Neutral rating 7.0 for OCI NV. 1. Now that the CF deal has been terminated, will you continue to look for potential partners in the fertilisers space? If not, what is management’s strategy to generate VALUATION & RISKS returns to shareholders over the coming years, and how do you expect to overcome the weak pricing environment? We use the Sum-of-the-Parts (SoTP) methodology to value OCI NV, which yielded a FV of EUR17.0/share. Our ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 valuation is highly biased to our subjective assessment of the group’s risks, particularly those related to Egypt. We 21 Nov 15 think OCI NV is fairly valued at current levels and while we see significant long term potentiaal in the name, the medium term outlook is challenging in light of the weak price environment and leveraged balance sheet. The main 2. What is management’s plan to reduce its debt exposure in the coming years, in light of the weak price environment and substantial capex commitments? Can we expect (EUR) risks to our forecasts and valuation are i) lower-than-expected/ higher-than-expected nitrogen fertiliser prices, ii) lower- Valuation Statistics 2015a 2016e 2017e 2018e more refinancing/ restructuring of debt in the coming period? than-expected or higher-than-expected operating rates in Egypt and iii) delays in start-up in the new project or cost EPS -1.18 0.79 0.35 1.23 ...... overruns at these projects. DPS 0.00 0.00 0.00 - BVPS 6.03 6.82 7.17 8.40 3. On the North African assets, what gas price are you currently paying in Egypt, what is your expectation for the long-term gas price, and how has gas supply to EFC and EBIC been YTD? For Sorfert, how has the plant been operating this year? P/E (x) N/M 21.39 47.79 13.73 ...... Dividend Yield 0.0% 0.0% 0.0% 0.0% P/BV (x) 2.8 2.5 2.4 2.0 4. What is your outlook on nitrogen fertilisers and methanol prices? Do you expect prices to drop even further in light of more capacity still to come online? When do you FCF Yield 6.2% -9.8% -11.9% 12.8% expect prices to bottom? EV / EBITDA (x) 11.2 10.8 9.2 6.8 ......

Key Forecast Drivers 2015a 2016e 2017e 2018e 5. How is construction progress on Iowa and Natgasoline? Do you expect any more delays or capex inflation? At the current price levels, how much EBITDA do you expect Revenue Growth -18.6% -9.9% 33.8% 15.4% IFCo will be able to generate, assuming full operations? Are there any other new plants that are being built in the corn belt? Do you expect that the premium enjoyed by Financial Statements - December Year End (EUR mn) EBITDA Margin 33.7% 27.3% 30.6% 36.2% nitrogen fertilsiers in the corn belt will begin to decline following the start-up of your plant, as well as other plants in the area? If not, why? Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 19.9% 11.2% 15.3% 21.7% ...... Current Assets 1,225 954 575 1,058 Effective Tax Rate -3.8% 46.6% 13.6% 18.8% Net Fixed Assets 5,914 5,368 5,112 4,834 Intangibles & Others 626 1,217 1,203 1,209 ROAE -19.5% 11.6% 4.9% 14.7% Total Assets 7,765 7,539 6,891 7,101 ROAIC 7.1% 2.8% 6.7% 10.5% Current Liabilities (Including Debt) 2,416 1,655 1,429 1,913 DPO 0.0% 0.0% 0.0% 0.0% Long-Term Liabilities (Including Debt) 3,598 3,919 3,359 2,729 Net Debt (Cash) / Equity (x) 2.35 1.97 1.68 1.17 Total Net Worth 1,260 1,426 1,499 1,757 Minority Interest 490 540 604 702 Net Debt (Cash) / EBITDA (x) 5.58 7.22 4.38 2.62 Total Equity & Liabilities 7,765 7,539 6,891 7,101 Net Debt 4,106 3,879 3,527 2,874 Company and Stock Data Price (EUR) 14.87 on 21 August 2016 Income Statement Bloomberg / Reuters OCI NA / OCI.AS Revenue 2,186 1,969 2,633 3,039 MKT Cap (mn) / Shares (mn) EUR3,124 / 210 EBITDA 736 537 806 1,099 3M ADVT (mn) USD8.1 EBIT 435 221 403 661 Float 45% EBT 282 122 160 439 Foreign Ownership Limit N/A Net Income (246) 165 74 257 Major Shareholders Cash Flow Statement Sawiris Family 55% CF from Operations 916 687 729 1,041 CF from Investments (231) (361) (133) (166) CF from Finance & Non Operating CF (735) (560) (1,030) (437)

Source: OCI NV, EFG Hermes estimates Yousef Husseini INSIGHTS INTO THE NEW REALITY [email protected] 90 91 NIGERIA

DANGOTE CEMENT 94 Year-end December 2010 2011 2012 2013 2014 2015 OANDO PLC 96

Nominal GDP (USD bn) 373.8 418.8 467.1 521.8 574.0 490.2 Real GDP growth (%) 10.0 4.9 4.3 5.4 6.3 2.7 CPI inflation, annual average (%) 13.7 10.8 12.2 8.5 8.0 9.0 Current account balance (USD bn) 14.5 12.6 20.4 20.1 1.3 (11.9) Current account balance (% of GDP) 3.9 3.0 4.4 3.9 0.2 (2.4) Fiscal balance (USD bn) (15.8) 1.6 1.1 (12.1) (11.9) (19.5) Fiscal balance (% of GDP) (4.2) 0.4 0.2 (2.3) (2.1) (4.0) Population (mn) 156.1 160.3 164.8 169.3 173.9 178.7

Source: IMF Share Price Performance Relative to Nigeria Stock Exchange (Rebased) DANGOTE CEMENT www.dangcem.com 220.0 Dangote Cement (NGN) Nigerian All Share Index

200.0 NIGERIA

180.0 Materials

BUSINESS DESCIPTION 160.0 Dangote cement is a leading cement producer based in Lagos, Nigeria, with widespread presence in Africa, with plants in Nigeria, Cameron, Ethiopia, Senegal, South Africa, Tanzania and Zambia, as well as an import terminal in 140.0 Ghana, with installed capacity of 44 mtpa as of the end of 2015 (29.3 mtpa in Nigeria, 4 mtpa in West and Central QUESTIONS Africa, and 10.3 mtpa in South and East Africa). Dangote cement has undertaken an aggressive growth strategy in 120.0 terms of installed capacity and tapping new markets; installed capacity in 2011 was only 8 mtpa with operations in two countries. The company holds leading market shares in most of the countries it operates in, with a dominant 66% 100.0 market share in its home country (in 1H16). Dangote’s regional presence is controlled through 28 almost fully-owned 1. What is the main challenge in the African market? subsidiaries, allowing it to consolidate revenues across Africa. 1H16 revenue breakdown was 72% in Nigeria, 17% West and Central Africa, and 10% in East and South Africa. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. What is your current utilisation rate, and your guidance for 2016 and 2017? INVESTMENT THESIS Dangote is set to see large operational growth as it plans to move forward with its robust expansion across Africa to (NGN) reach a target of 74 mtpa installed capacity by mid-2019, in current facilities and launching new facilities in Nigeria, Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) Congo, Kenya, Liberia, Mali, Niger and Zimbabwe, in addition to ramping-up newly installed capacities. In addition, EPS 11.85 9.42 10.86 9.86 3. Do African markets have enough demand to absorb your planned capacity additions within the next three years? the company announced plans in 3Q15 to extend its reach beyond Africa, through the establishment of a new DPS 7.00 6.00 8.00 8.00 plant in Nepal. Aliko Dangote, the company’s major shareholder and Africa’s richest man, has announced on several BVPS 31.99 34.49 38.20 40.57 occasions his intention to list Dangote Cement on the London Stock exchange and Johannesburg stock exchange, currently, the company is listed on the Nigerian Stock Exchange. The company’s net income dropped 14% Y-o-Y in 4. What is your current status on plans to list on the LSE? 1H16, despite 21% revenue growth, due to a ramp-up in plants and higher fuel costs in Nigeria. Sales volumes grew P/E (x) 15.4 19.4 16.9 18.6 59%; however, revenue growth was slower on the back of lower selling prices. Dividend Yield 3.8% 3.3% 4.4% 4.4% P/BV (x) 5.7 5.3 4.8 4.5 5. Are you currently targeting any potential export markets? FCF Yield 4.3% -0.5% 3.8% 3.4% EV / EBITDA (x) 14.8 15.3 13.0 13.8 6. What is the reason behind lower selling prices in 1H16, and will that continue? Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Revenue Growth 29.4% 1.4% 25.6% 27.5% Financial Statements - December Year End (NGN mn) EBITDA Margin 59.5% 57.0% 53.4% 45.7% 7. What region of Africa do you see as having the highest growth potential? Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 50.7% 47.8% 42.3% 33.9% Current Assets 149,303 137,104 165,980 273,650 Effective Tax Rate 5.5% -13.6% -3.7% -11.7% Net Fixed Assets 581,465 747,794 917,212 1,065,212 Intangibles & Others 113,657 99,823 27,751 32,392 ROAE 42.3% 28.1% 29.9% 25.4% Total Assets 844,425 984,721 1,110,943 1,371,254 ROAIC 30.7% 24.1% 23.7% 18.4% Current Liabilities (Including Debt) 164,767 232,949 200,698 355,521 DPO 59.1% 63.7% 73.7% 81.1% Long-Term Liabilities (Including Debt) 129,565 159,886 265,525 335,497 Net Debt (Cash) / Equity (x) 0.20 0.38 0.33 0.44 Total Net Worth 545,064 587,725 650,955 691,369 Minority Interest 5,029 4,161 (6,235) (11,133) Net Debt (Cash) / EBITDA (x) 0.48 0.99 0.82 1.21 Total Equity & Liabilities 844,425 984,721 1,110,943 1,371,254 Net Debt 110,638 221,988 214,812 299,575 Company and Stock Data Price (NGN) 183.00 on 21 August 2016 Income Statement Bloomberg / Reuters DANGCEM NL / N/A Revenue 386,177 391,639 491,725 541,701 MKT Cap (mn) / Shares (mn) NGN3,118,413 / 17,041 EBITDA 229,588 223,368 262,449 247,456 3M ADVT (mn) USD0.7 EBIT 195,882 187,102 207,823 183,460 Float 9% EBT 190,761 184,689 188,294 184,458 Foreign Ownership Limit N/A Net Income 201,912 160,578 184,994 168,154 Major Shareholders Cash Flow Statement Dangote Industries 91% CF from Operations 275,349 201,887 276,209 208,158 CF from Investments (181,197) (195,192) (157,390) (107,859) CF from Finance & Non Operating CF (67,669) (59,938) (97,377) (103,849)

Source: Dangote Cement, EFG Hermes, and Bloomberg Tarek El-Shawarby ------INSIGHTS INTO THE NEW REALITY [email protected] ------94 95 Share Price Performance Relative to Nigeria Stock Exchange (Rebased) OANDO PLC www.oandoplc.com 14.0 Oando (NGN) Nigerian All Share Index

12.0 NIGERIA

10.0 Energy 8.0 BUSINESS DESCIPTION Oando PLC is an integrated energy solutions provider in Nigeria that was established in 1956 as Esso West Africa. 6.0 Oando is the largest indigenous producer in Nigeria, with competitive market positions in the Nigerian wholesale 4.0 and retail distribution of refined petroleum products. Oando is the first private sector company to penetrate the mid- QUESTIONS stream business in Nigeria through operating a leading gas distribution company. The company has a primary listing 2.0 on the Nigerian Stock Exchange and a secondary listing on the Johannesburg Stock Exchange. Oando is involved in a range of activities, including oil and gas exploration, refining, production, marketing, trading, pipeline construction 0.0 and oilfield services. The company is adopting a strategy to grow i) organically through expanding the current 1. What is your strategy to deal with the NAIRA devaluation? How much is the company operationally and financially exposed to the devaluation of the currency? Is the portfolio; and ii) inorganically through the acquisition of new assets; while also iii) capitalising on any divestment company considering a buyback of its USD-denominated debt? opportunities. Oando currently produces over 54,000 barrels of oil equivalents per day (boepd), and the company is 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 planning to increase this further through more acquisitions. Following the Conoco Phillips acquisition, Oando’s proven 21 Nov 15 and probable reserve base stands at c445mn boepd. 2. How much further will the company pursue its divestment strategy? How will the company reinvest the proceeds from divestment? (NGN) INVESTMENT THESIS Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) Prior to 2000, Oando was a retail downstream company, but has since begun initiatives to expand into other segments EPS 0.22 (15.49) (4.22) (3.53) of the value chain. Currently, the company’s business lines are involved in the upper-, mid- and downstream segments. DPS 0.73 0.00 0.00 N/A 3. How is the company diversifying its operations? What is the company’s five-year strategy? What is the company’s plan to deal with the currently low oil price Oando plans to continue to diversify its assets in the energy sector and decrease its dependence on the low-margin BVPS 22.67 3.43 3.06 6.04 retail segments. The company also commenced an 8.5 km pipeline expansion in its gas and power sector, which environment, especially if oil remains low in the long term? will increase the capacity to 70 bcf/d. The company has divested 60% of Oando Downstream Services (ODS) and also made a full exit (100% stake) in Oando Energy Services (OES), with the proceeds to be used to deleverage the P/E (x) 24.5 N/M N/M N/M company’s balance sheet. The company is currently experiencing foreign exchange volatility after the government Dividend Yield 13.3% 0.0% 0.0% 0.0% 4. What is the company’s plan to increase E&P activities? If yes, will the expansion be done through organic or inorganic growth? What countries will be targeted for had adopted a flexible exchange rate regime, and the depression in crude oil prices has created further challenges P/BV (x) 0.2 1.6 1.8 0.9 expansion in West Africa? What business segments will the company focus on to penetrate the international markets? What is the company’s plan for regional expansion? for the company. FCF Yield -19.7% -161.6% -12.1% -35.2% EV / EBITDA (x) 12.3 8.3 5.4 22.7 5. Is the company studying any potential acquisition targets? What is the company’s capex plans in the next two-three years? What is your annual forecast growth rate of Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) oil production? Revenue Growth -30.8% -79.3% 73.8% 69.7% Financial Statements - December Year End (NGN mn) EBITDA Margin 7.2% 51.9% 45.9% 8.1% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 3.6% 27.5% 25.4% 0.1% Current Assets 225,897 193,739 359,495 293,369 Effective Tax Rate 755.7% -5.5% 4.7% 32.6% Net Fixed Assets 172,210 314,042 223,127 397,033 Intangibles & Others 193,790 384,572 363,699 481,254 ROAE 1.1% -149.7% -148.4% -78.5% Total Assets 591,897 892,354 946,321 1,171,656 ROAIC 3.9% 4.7% 11.5% 6.1% Current Liabilities (Including Debt) 329,518 522,741 640,535 561,963 DPO 326.2% 0.0% 0.0% 0.0% Long-Term Liabilities (Including Debt) 100,011 326,002 254,893 471,463 Net Debt (Cash) / Equity (x) 1.42 10.22 3.95 1.93 Total Net Worth 158,992 31,139 36,852 72,715 Minority Interest 3,376 12,472 14,042 65,515 Net Debt (Cash) / EBITDA (x) 7.13 9.25 2.71 15.22 Total Equity & Liabilities 591,897 892,354 946,321 1,171,656 Net Debt 231,214 445,699 201,198 267,158 Company and Stock Data Price (NGN) 5.47 on 21 August 2016 Income Statement Bloomberg / Reuters OANDO NL / OANDO.LG Revenue 449,873 92,912 161,490 217,408 MKT Cap (mn) / Shares (mn) NGN65,829 / 12,035 EBITDA 32,413 48,176 74,169 17,552 3M ADVT (mn) USD0.1 EBIT 16,269 25,582 41,099 194 Float 97% EBT 713 (88,726) (32,736) (60,989) Foreign Ownership Limit N/A Net Income 1,414 (142,300) (50,435) (42,983) Major Shareholders Cash Flow Statement Appiah-Korang Nana A 2% CF from Operations 37,013 (37,979) 13,418 (7,158) Ocean & Oil Developm 1% CF from Investments (45,928) (192,348) 18,332 43,503 CF from Finance & Non Operating CF 33,714 214,422 (54,296) 12,930

Source: Oando PLC, EFG Hermes, and Bloomberg Ahmed Hazem Maher INSIGHTS INTO THE NEW REALITY [email protected] 96 97 OMAN

BANK MUSCAT 100 Year-end December 2013a 2014a 2015e 2016f 2017f OMANTEL 102 104 Nominal GDP (USD bn) 78.1 81.7 67.6 64.9 70.3 OOREDOO OMAN Real GDP growth (%) 3.9 2.9 6.2 1.2 1.8 CPI inflation, annual average (%) 1.4 1.3 0.1 1.0 0.7 Current account balance (USD bn) 5.2 4.1 (15.1) (13.3) (10.1) Current account balance (% of GDP) 6.7 5.0 (22.4) (20.6) (14.4) Fiscal balance (USD bn) 3.6 0.8 (13.6) (12.0) (9.6) Fiscal balance (% of GDP) 4.6 1.0 (20.2) (18.5) (13.6) Population (mn) 3.6 3.7 3.8 4.0 4.1

Source: Central Bank of Oman, IMF, and EFG Hermes estimates Share Price Performance Relative to MSM30 (Rebased) BANK MUSCAT FAIR VALUE OMR0.49 RATING BUY www.bankmuscat.com 0.6 Bank Muscat (OMR) MSM30 OMAN

0.5 Financials INVESTMENT THESIS Established in 1982, Bank Muscat is the largest commercial bank in Oman. We have a Buy rating on Bank Muscat with 0.4 a fair value (FV) of OMR0.49/share. With a commanding market share of 44% of banking sector assets and 42% of total banking sector deposits, Bank Muscat is almost three times the size of its closest competitor. We like the bank QUESTIONS for its high transparency, dominance in the domestic market, and clean, solid balance sheet. Strong balance sheet liquidity and capitalisation levels, along with a high proportion of low-cost demand and saving deposits, positions 0.3 Bank Muscat strongly to manage risks in a weak economic environment. 1. Margins have been under pressure over the past two quarters. While funding costs are rising, there is also a decline in asset yields. What is driving that? Are you able to VALUATION & RISKS pass on higher loan rates to customers? Our fair value (FV) of OMR0.490/share for Bank Muscat is derived from a two-stage discounted equity cash flow 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 21 Aug 15 ...... model and a discount rate of 12.5%. In the first stage, we calculate cash flows based on our detailed forecasts for the bank. In the second stage, we calculate a terminal value using a 3% terminal growth rate in cash flows beyond seven years. While Bank Muscat has a commanding presence in Oman, our target P/BV multiple, which incorporates Oman’s 2. The bank’s loans-to-deposit ratio are well below peers. Are you preferring to maintain a liquidity cushion in the current environment? Are you seeing pressure on liquidity? (OMR) relatively lower long-term growth prospects, is at a discount to the regional average. Key downside risks include a Valuation Statistics 2015a 2016e 2017e 2018e ...... pressure on net interest spreads, and asset quality deterioration. EPS 0.066 0.058 0.060 0.073 DPS 0.024 0.022 0.023 0.028 3. NPLs have seen a steady increase since the end of 2015. Are there any specific sectors of the economy where you are seeing an elevated level of stress? BVPS 0.537 0.558 0.597 0.645 ......

P/E (x) 6.1 6.8 6.6 5.5 Dividend Yield 6.0% 5.6% 5.8% 7.0% P/BV (x) 0.7 0.7 0.7 0.6 Mkt Cap / Deposits 13.1% 12.1% 11.2% 10.3%

ROAE 12.7% 10.7% 10.4% 11.8% ROAA 1.6% 1.3% 1.3% 1.5%

Key Forecast Drivers 2015a 2016e 2017e 2018e Growth in Loans 8.0% 5.8% 7.3% 9.2% (OMR mn) Financial Statements - December Year End Growth in Deposits 11.9% 8.0% 8.0% 9.0% Balance Sheet 2015a 2016e 2017e 2018e Loans / Deposits 99.5% 97.5% 96.9% 97.1% Cash & Central Bank 2,412 1,345 1,373 1,527 Growth in Net Interest Inc. 6.9% 5.9% 4.0% 10.3% Interbank Assets 991 971 961 840 Growth in Non-Interest Inc. 5.6% 1.1% 8.1% 7.8% Loans (Net) 7,330 7,756 8,325 9,089 Net Interest Spread 2.48% 2.45% 2.49% 2.57% Financial Investments 1,566 1,533 1,637 1,614 Net Interest Margin 2.58% 2.53% 2.61% 2.69% Fixed & Other Assets 245 254 264 275 Cost / Income 42.0% 42.7% 43.3% 42.5% Total Assets 12,545 11,860 12,560 13,345 NPL Ratio 2.7% 3.1% 3.6% 3.8% Due to Banks 2,860 1,431 1,374 1,404 Customer Deposits 7,363 7,953 8,589 9,362 NPL Coverage Ratio 131.2% 127.3% 122.7% 123.3% Bonds & Long-Term Loans 432 487 481 300 Capital Adequacy Ratio 16.1% 16.6% 16.4% 16.0% Dividend Payable & Other Liabilities 456 473 495 528 Total Liabilities 11,110 10,344 10,938 11,594 Company and Stock Data Minority Interest - - - - Price (OMR) 0.40 on 21 August 2016 Shareholders' Equity & Other Capital 1,434 1,516 1,622 1,751 Bloomberg / Reuters BKMB OM / BMAO.OM Total Shareholders' Equity & Liabilities 12,545 11,860 12,560 13,345 MKT Cap (mn) / Shares (mn) OMR962 / 2,417 Income Statement 3M ADVT (mn) USD1.1 Net Interest Income 261 276 287 316 Float 40% Non-Interest Income 147 149 161 173 Foreign Ownership Limit 49% Total Banking Income 408 425 448 490 Operating Expense (171) (181) (194) (208) Major Shareholders Total Provisions (42) (60) (64) (52) Royal Court of Affairs, Oman 24% Other Income / Expense 3 3 3 3 Dubai Financial Group 12% Income before Taxes 198 186 193 233 Net Income 175 158 164 198

Source: Bank Muscat, EFG Hermes estimates Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] 100 101 Share Price Performance Relative to MSM30 (Rebased) OMANTEL FAIR VALUE OMR1.677 RATING NEUTRAL www.omantel.om 1.8 Omantel (OMR) MSM30 OMAN 1.7 Telecommunication Services INVESTMENT THESIS 1.6 Having been Oman’s incumbent monopoly operator in the telecom industry until 2005, Omantel has largely benefited from its position as the sole provider of mobile, fixed-line and internet services in the country. The government’s efforts to bring competition to the sector led to the entrance of Qtel’s Nawras to the mobile segment in 2005. Nawras 1.5 QUESTIONS now controls just over 40% of the mobile market. Nawras also launched fixed-line services after obtaining Oman’s second licence, which included an international gateway licence, through which Nawras routed its international 1.4 traffic, pressuring Omantel’s wholesale revenues in 2010. We remain Neutral on the long-term fundamentals of the Omani telecom market, as it is nearing saturation and carries the risk of more competition, which has been apparent 1. What is Omantel’s strategy for the next five years and how is it different from the previous strategy? What are the costs associated with the implementation of this strategy? ever since the government launched its sector liberalisation plan in 2008. The opening of the market to competition ...... also resulted in six Mobile Virtual Network Operator licences being given away. Omantel continues to generate one of 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 the highest FCF and dividend yields amongst MENA peers, but offers modest EBITDA and earnings growth. 21 Aug 15 2. What is management’s assessment of competition, particularly following the completion of Ooredoo’s network modernisation and the ensuing positive impact on their operations? (OMR) VALUATION & RISKS Valuation Statistics 2015a 2016e 2017e 2018e ...... We value Omantel using a discounted cash flow (DCF) model yielding a fair value of OMR1.677/share. We currently EPS 0.065 0.166 0.168 0.174 have a Neutral rating on the stock. Upside risks to our valuation include: i) further increase in dividend distribution DPS 0.115 0.115 0.115 0.120 3. What is management’s perception of the regulatory environment? Do you expect a third mobile operator license to materialise soon? When will the 15% tax be enacted from the recently-increased annual cash DPS of OMR0.115/share, and ii) better-than-expected margins on the back BVPS 0.721 0.771 0.825 0.879 of cost optimisation. Key downside risks to our valuation are: i) further competitive pressure on Omantel in any of its and will it be retroactive? business segments, ii) a less likely increase in royalty rates, and, to a lesser extent iii) further sector liberalisation by ...... P/E (x) 25.29 9.88 9.71 9.40 the government. Dividend Yield 7.0% 7.0% 7.0% 7.3% 4. When can investors expect another dividend increase, bearing in mind capex needs are falling? Given lower oil revenues, would the government be a proponent of P/BV (x) 2.3 2.1 2.0 1.9 FCF Yield 7.6% 7.2% 8.9% 9.6% higher dividends from Omantel or of further ownership reduction in the company? ...... EV / EBITDA (x) 5.5 5.1 4.9 4.8 EV / Sub. (OMR) 369 349 335 322 5. Why was the sale of WorldCall Telecom scrapped? Are there any developments that could lead to a sale of disposal before year-end? Key Forecast Drivers 2015a 2016e 2017e 2018e ...... Total Subscribers (mn) 3.21 3.37 3.51 3.65 (OMR mn) Financial Statements - December Year End Revenue Growth 6.9% 3.7% 3.6% 3.0% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 48.4% 50.1% 49.8% 49.5% Current Assets 229 233 257 277 EBIT Margin 30.3% 31.8% 31.3% 31.1% Net Fixed Assets 463 501 523 541 Effective Tax Rate -75.8% -31.8% -32.0% -32.0% Intangibles & Others 101 99 96 94 ROAE 8.7% 22.2% 21.1% 20.4% Total Assets 793 833 877 912 ROAIC 21.6% 22.1% 21.4% 21.4% Current Liabilities (Including Debt) 265 260 278 282 Long-Term Liabilities (Including Debt) 23 34 23 17 DPO 177.9% 69.5% 68.3% 69.0% Total Net Worth 540 578 618 659 Net Debt (Cash) / Equity (x) (0.0) (0.0) (0.1) (0.1) Minority Interest (35) (39) (43) (46) Net Debt (Cash) / EBITDA (x) (0.0) (0.0) (0.1) (0.2) Total Equity & Liabilities 793 833 877 912 Net Debt (7) (9) (32) (60) Company and Stock Data Price (OMR) 1.635 on 21 August 2016 Income Statement Revenue 514 533 552 569 Bloomberg / Reuters OTEL OM / OTL.OM (mn) (mn) EBITDA 249 267 275 281 MKT Cap / Shares OMR1,226 / 750 EBIT 156 169 173 177 3M ADVT (mn) USD0.6 EBT 55 176 180 186 Float 38% Net Income 48 124 126 130 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 221 222 231 237 Omani Government 51% CF from Investments (126) (131) (119) (117) Pension Funds 11% CF from Finance & Non Operating CF (99) (91) (92) (103)

Source: Omantel, EFG Hermes estimates

Omar Maher Karim Riad INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 102 103 Share Price Performance Relative to MSM30 (Rebased) OOREDOO OMAN www.ooredoo.om 0.80 Ooredoo Oman (OMR) MSM30 OMAN 0.75

Telecommunication Services 0.70 BUSINESS DESCIPTION Ooredoo Oman became the second integrated telecommunications operator in Oman after a consortium led by 0.65 Ooredoo Group won a mobile licence in 2004 followed by a fixed-line licence in June 2009, breaking Omantel’s monopoly. It launched mobile services in March 2005 and was able to grow its market share to a peak of c47% QUESTIONS in less than four years (later receded to c41% by mid-2014), while breaking even on EBITDA after less than two 0.60 years of operations. In October 2010, Ooredoo Oman offered 40% of its capital to the public, in compliance with its licence terms, in an IPO that raised OMR182 million (USD471 million). Its stock began trading on the Muscat 0.55 Securities Market in November 2010. Ooredoo Oman launched fixed-line services in mid-2010 and ended 2012 with 1. Following the recent strong uptake in the corporate segment, how does the company plan to differentiate its enterprise offering from that of its competitor? Do you see a 15% market share. The Omani telecom market became more competitive after the Government launched its sector room for further expanding Ooredoo’s market share? liberalisation plan in 2008, which included the award of six Mobile Virtual Network Operator licences...... 21 Feb 16 21 May 16 21 Nov 15 21 Aug 16 INVESTMENT THESIS 21 Aug 15 Ooredoo Oman is one of the few straightforward telecom plays in the MENA region, in our view, as it is a single- 2. How does management view the competitive landscape at the moment? Are there signs of a stronger and more defensive reaction from the incumbent to your notable (OMR) country operation and is allowed to have foreign ownership of up to 70% of the stock. It paid dividends for the first Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) performance? time in 2010 (OMR0.038/share), which rose to OMR0.040/share in 2015. It has enjoyed healthy growth rates and EPS 0.051 0.058 0.064 0.068 ...... margins until 2010, after which it was hit by strong competition from Omantel. Its top-line fell 2% Y-o-Y in 2012 after DPS 0.038 0.038 0.040 0.040 having posted strong growth in previous years, and its adjusted EBITDA margin came under pressure, falling gradually BVPS 0.290 0.305 0.331 0.329 to 39% in 2012 from 45% in 2010. Earnings growth also declined gradually from 2010 to 2012, which management 3. Which segment represents the most promising opportunity for the company going forward? Has Ooredoo considered investing in submarine cables to become a “carrier partially attributed to the rollout of the fixed-line network. Ooredoo Oman undertook critical network modernisation of carriers”? P/E (x) 14.5 12.8 11.6 10.8 work (mainly in 2013), which brought its performance back on track. Moreover, it concluded its nationwide fiber- ...... Dividend Yield 5.1% 5.1% 5.4% 5.4% optic grid in late-2015, which should help the company penetrate the corporate segment, a market almost entirely dominated by Omantel. Oman has raised corporate taxes in 2016 and there remains a risk of rising royalty rates levied P/BV (x) 2.6 2.4 2.2 2.2 4. Should we expect higher dividends given that the high capex cycle has passed and given Ooredoo Group’s need for liquidity to meet certain debt maturities? on telecom companies. FCF Yield 1.2% 5.7% 6.1% 7.7% ...... EV / EBITDA (x) 5.7 4.8 4.1 3.9 EV / Sub (OMR) 220 203 189 186 5. Does Ooredoo think that there is room for a third player in Oman? Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) ...... Total subscribers 2 3 3 3 Financial Statements - December Year End (OMR mn) Revenue Growth 4.4% 12.1% 11.3% 9.5% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBITDA Margin 46.0% 48.6% 51.5% 51.2% Current Assets 48 60 68 53 EBIT Margin 26.4% 26.6% 28.8% 28.2% Net Fixed Assets 256 294 304 299 Effective Tax Rate -11.7% -12.3% -14.3% -13.7% Intangibles & Others 36 32 38 35 ROAE 18.0% 19.6% 20.1% 20.7% Total Assets 340 386 410 388 ROAIC 24.2% 25.0% 27.8% 28.0% Current Liabilities (Including Debt) 118 151 161 152 DPO 74.5% 65.5% 62.5% 58.6% Long-Term Liabilities (Including Debt) 34 37 34 21 Net Debt (Cash) / Equity (x) 0.12 0.10 0.11 0.21 Total Net Worth 189 199 215 214 Minority Interest - - - - Net Debt (Cash) / EBITDA (x) 0.24 0.17 0.19 0.34 Total Equity & Liabilities 340 386 410 388 Net Debt 22 19 24 45 Company and Stock Data Price (OMR) 0.74 on 21 August 2016 Income Statement Bloomberg / Reuters ORDS OM / ORDS.OM Revenue 202 226 252 263 MKT Cap (mn) / Shares (mn) OMR482 / 651 EBITDA 93 110 130 135 3M ADVT (mn) USD0.4 EBIT 53 60 73 74 Float 45% EBT 38 43 49 51 Foreign Ownership Limit 70% Net Income 33 38 42 44 Major Shareholders Cash Flow Statement Ooredoo Group 55% CF from Operations 82 98 93 118 CF from Investments (77) (70) (73) (91) CF from Finance & Non Operating CF (15) (16) (18) (38)

Source: Ooredoo Oman, EFG Hermes, and Bloomberg Omar Maher Karim Riad INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 104 105 PAKISTAN

BANK ALFALAH LIMITED 108 Year-end December 2010 2011 2012 2013 2014 2015 D.G. KHAN CEMENT 110 Nominal GDP (USD bn) 177.2 213.6 224.4 231.2 243.4 270.0 MAPLE LEAF CEMENT FACTORY 112 Real GDP growth (%) 2.6 3.6 3.8 3.7 4.0 4.2 CPI inflation, annual average (%) 10.1 13.7 11.0 7.4 8.6 4.5 Current account balance (USD bn) (3.9) 0.2 (4.7) (2.5) (3.1) (2.6) Current account balance (% of GDP) (2.2) 0.1 (2.1) (1.1) (1.3) (1.0) Fiscal balance (USD bn) (10.7) (14.4) (19.4) (19.3) (11.9) (14.2) Fiscal balance (% of GDP) (6.0) (6.7) (8.6) (8.4) (4.9) (5.3) Population (mn) 169.0 172.6 176.2 180.7 183.6 186.2

Source: IMF Share Price Performance Relative to KARACHI 100 Index (Rebased) BANK ALFALAH LIMITED www.bankalfalah.com Bank Alfalah Ltd (PKR) KARACHI 100 Index PAKISTAN 32.0

30.0 Financials

BUSINESS DESCIPTION 28.0 With total deposits of PKR623bn (USD5.9bn), Bank Alfalah Ltd (BAFL) is the sixth largest commercial bank in Pakistan, providing a full range of financial solutions to individuals, corporations and institutions. The bank also operates the 26.0 largest Islamic Banking window operation by any conventional bank, which places it amongst the top three Islamic QUESTIONS Banks in the country. Majority-owned by the Abu Dhabi Group, BAFL commenced commercial banking operations in 24.0 1997 and has grown to become one of the largest banks in the country. The bank has 649 branches spread over 222 22.0 cities and has 11 international branches in Afghanistan, Bangladesh and Bahrain. The bank also has a representative office in the UAE. In 2014, the International Finance Corporation acquired a 15% stake in the bank. 1. The bank’s loan growth has outpaced sector loan growth. Which segments are driving that? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 INVESTMENT THESIS 2. Bank Alfalah is the leader in consumer and SME segment. However, collectively these two segments still constitute a relatively small part of your overall loan book. What Aggressive expansion of the branch network has allowed Bank Alfalah to build up a formidable deposit franchise. Valuation Statistics (PKR) 2013a 2014a 2015a 1Q16a (TTM) percentage of the loan book contribution can we expect to come from retail and SME over the next five years? CASA deposit mix of the bank has improved to 77% at end of 1Q16, rising from 64% in 2010. Strong improvement EPS 3.41 4.09 4.73 4.64 ...... in CASA mix, coupled with a low interest environment, has allowed the bank to report steady improvement in net DPS 2.00 2.00 1.00 1.00 interest margins over the past 12 months. Management expects NIMs to remain stable in the near term, driven by BVPS 20.95 23.83 26.69 27.26 a focused strategy to shed expensive deposits. With monetary policy easing cycle bottoming out, the bank’s deposit 3. The bank’s branch network has growth strongly over the past three years. Is the bank looking to invest further in branch expansion, or the current network size sufficient? franchise positions it strongly to benefit from an up-tick in interest rates. The bank also enjoys significant balance ...... sheet liquidity, with loans-to-deposit ratio at 54% as of 1Q16. Loan growth has been steadily improving -c16% Y-o-Y P/E (x) 8.5 7.1 6.1 6.3 in 1Q16- and management is targeting retail and SME to drive 15-20% growth over 2015-18. Dividend Yield 6.9% 6.9% 3.4% 3.4% P/BV (x) 1.4 1.2 1.1 1.1 4. The bank has ramped up its NPL coverage to 85%, a significant improvement over the past five years. What level of NPL coverage is the bank targeting? Mkt Cap / Deposits 8.8% 7.6% 7.2% 7.4% ......

ROAE 18.0% 18.9% 19.0% 19.4% ROAA 0.8% 0.9% 0.9% 1.0%

Key Performance Ratios 2013a 2014a 2015a 1Q16a (TTM) Growth in Loans 11.5% 11.4% 12.6% 16.1% Financial Statements - December Year End (PKR mn) Growth in Deposits 15.0% 15.3% 5.6% 8.4% Balance Sheet 2013a 2014a 2015a 1Q16a (TTM) Loans / Deposits 52.1% 50.3% 51.1% 53.9% Cash & Central Bank 61,205 50,516 62,369 43,761 Interbank Assets 34,764 12,332 16,552 14,272 Growth in Net Interest Income -0.2% 29.5% 31.0% 18.7% Loans (Net) 263,302 308,911 380,927 336,014 Growth in Non-Interest Income 35.7% 7.2% -0.4% 0.4% Financial Investments 219,690 324,319 397,097 434,959 Net Interest Spread 5.11% 3.16% 4.14% 3.55% Fixed & Other Assets 32,467 47,051 45,663 32,273 Net Interest Margin 4.40% 3.76% 3.98% 3.66% Total Assets 611,428 743,128 902,608 861,278 Due to Banks 9,543 11,758 9,734 11,323 Cost / Income 68.7% 65.4% 58.6% 58.8% Customer Deposits 525,526 605,963 640,189 623,359 NPL Ratio 6.9% 6.4% 5.3% 5.7% Bonds & Long-Term Loans 33,106 65,220 182,376 152,988 NPL Coverage Ratio 72.7% 73.4% 83.7% 80.6% Dividend Payable & Other Liabilities 11,351 15,368 16,955 18,565 Capital Adequacy Ratio 12.1% 12.8% 13.4% 13.9% Total Liabilities 579,526 698,309 849,254 806,235 Minority Interest - - - - Shareholders' Equity & Other Capital 31,902 44,819 53,353 55,043 Company and Stock Data Total Shareholders' Equity & Liabilities 611,428 743,128 902,608 861,278 Price (PKR) 29.00 on 21 August 2016 Bloomberg / Reuters BAFL PA / BAFL.KA Income Statement MKT Cap (mn) / Shares (mn) PKR46,104 / 1,590 Net Interest Income 16,895 21,873 28,648 28,940 3M ADVT (mn) USD0.3 Non-Interest Income 8,279 8,876 8,841 9,015 Float 47% Total Banking Income 25,174 30,749 37,489 37,955 Foreign Ownership Limit N/A Operating Expense 17,289 20,101 21,956 22,316 Total Provisions 893 1,929 2,599 1,945 Major Shareholders Other Income/Expense 184 206 330 335 International Finance Corporation 14.98% Income before Taxes 6,807 8,514 12,604 13,359 H.H. Sheikh Nahayan Mubarak Al Nahayan 10.84% Net Income 4,676 5,641 7,523 7,793 H.H. Sheikh Hamdan Bin Mubarak Al Nahayan 8.51%

Source: Bank Alfalah, EFG Hermes estimates Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] 108 109 Share Price Performance Relative to KARACHI 100 Index (Rebased) D.G. KHAN CEMENT www.dgcement.com D.G Khan Cement (PKR) KARACHI 100 Index 220.0 PAKISTAN

190.0 Materials BUSINESS DESCIPTION Dera Gazi Cement, DG Khan Cement Company Limited (DGKC) is part of the Nishat group (a major Paksitani 160.0 conglomerate operating in textiles, Cement, Banking, Insurance, Power Generation, Hospitality, Agriculture, Dairy and Paper Products), and is the third largest cement manufacturer in the country. The company operates two c.2 mtpa 130.0 QUESTIONS plants in Dera Ghazi Khan, Punjab (DGK) and Khairpur, District Chakwal, Punjab (KHP), with a total cement capacity of 4 mtpa, and a c9% market share. The company has a market share of 10% of Pakistan’s local cement market, where 100.0 the installed capacity stands at c.45 mtpa Exports represented 16% of 9M16 total sales; the main export markets by 2015 year-end included Afghanistan (36%), India (32%) and South Africa (13%). DG Cement has a large investment 1. Do you expect to maintain your current high utilization rate in the near term? portfolio, (25% of assets in 9M16, where the main investments, in terms of value, are Nishat Dairy (55%), and Nishat ...... Mills (9%) that was booked under assets held for sale in the 2015 financials. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Are you exploring any new export markets to overcome the slowdown in some of your main export destinations? INVESTMENT THESIS DG Khan Cement has one of the highest utilisation rates in Pakistan (96% in FY15); the average utilisation in Pakistan ...... (PKR) is 77%. The company announced plans to extend its reach to the Southern region of Pakistan on an expected Valuation Statistics 2013a 2014a 2015a 9M16a (TTM) demand hike from the China-Pakistan Economic Corridor (CPEC), through a new Greenfield 2.6 mtpa cement plant EPS 12.43 13.68 17.72 19.06 3. What is the main demand driver in the near term? in Baluchistan, near Karachi, that is expected to commence operations in 2019. A major issue facing DG Khan cement DPS 3.00 3.50 5.00 5.00 ...... is declining export sales (since 2012), with a negative CAGR of 19%. It saw the sharpest export drop in 2015 (-35%) BVPS 109.54 140.56 142.52 140.47 likely due to a slow-down in Afghanistan, its major export destination, resulting from increased price competition from Iran. The company’s bottom line is exposed to income from its investment portfolio (c30% of FY15 earnings), 4. Are current prices stable? P/E (x) 16.1 14.7 11.3 10.519 comprised mainly of dividend income (73%). The company’s net income for 9M16 grew 18% Y-o-Y, mainly due to a ...... Dividend Yield 1.5% 1.7% 2.5% 2.5% 13% increase in revenue and an 8%-point expansion in gross margin. P/BV (x) 1.8 1.4 1.4 1.4 5. What’s your expected market share upon inaugurating the new plant, are you considering other additions in the market? FCF Yield 4.8% 8.7% 10.7% 12.5% ...... EV / EBITDA (x) 8.8 8.2 7.6 5.5

6. Are you planning/in the process of disposing any of your assets held for sale? Key Performance Ratios 2013a 2014a 2015a 9M16a (TTM) ...... Financial Statements - June Year End (PKR mn) Revenue Growth 8.3% 7.4% 1.7% 10.9%

Balance Sheet 2013a 2014a 2015a 9M16a (TTM) EBITDA Margin 32.3% 32.2% 34.2% 43.4% Current Assets 26,663 32,831 32,959 30,897 EBIT Margin 25.9% 25.5% 26.8% 36.5% Net Fixed Assets 29,958 30,817 33,693 37,922 Effective Tax Rate -23.2% -24.2% -17.7% -29.6% Intangibles & Others 8,599 11,178 11,603 12,456 ROAE 11.3% 10.9% 12.3% 13.0% Total Assets 65,220 74,826 78,255 81,275 Current Liabilities (Including Debt) 10,506 6,798 7,559 9,367 ROAIC 11.5% 10.0% 10.1% 15.2% Long-Term Liabilities (Including Debt) 6,447 6,142 6,022 8,295 DPO 24.1% 25.6% 28.2% 26.2% Total Net Worth 47,992 61,580 62,442 61,544 Net Debt (Cash) / Equity (x) (0.15) (0.51) (0.33) (0.27) Minority Interest 276 305 2,232 2,068 Net Debt (Cash) / EBITDA (x) (0.89) (3.51) (2.18) (1.27) Total Equity & Liabilities 65,220 74,826 78,255 81,275 Net Debt (7,384) (31,295) (21,048) (16,911) Company and Stock Data Income Statement Price (PKR) 200.45 on 19 August 2016 Revenue 25,827 27,749 28,221 30,653 Bloomberg / Reuters DGKC PA / N/A EBITDA 8,334 8,925 9,662 13,292 MKT Cap (mn) / Shares (mn) PKR87,821 / 438 EBIT 6,697 7,073 7,568 11,183 3M ADVT (mn) USD3.4 EBT 7,026 7,947 9,547 11,623 Float 52% Net Income 5,448 5,995 7,766 8,350 Foreign Ownership Limit N/A

Cash Flow Statement Major Shareholders CF from Operations 7,597 10,382 11,685 12,951 Nishat Mills Ltd 31% CF from Investments (3,277) (2,867) (9,427) (3,366) Mansha Mian Umer 6% CF from Finance & Non Operating CF (3,112) (3,432) (2,535) (241) Mansha Mian Hassan 6%

Source: D.G. Khan Cement, EFG Hermes, and Bloomberg

Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] 110 111 Share Price Performance Relative to KARACHI 100 Index (Rebased) MAPLE LEAF CEMENT FACTORY www.kmlg.com Maple Leaf Cement (PKR) KARACHI 100 Index 120.0 110.0 PAKISTAN 100.0 Materials 90.0 BUSINESS DESCIPTION Maple Leaf Cement is a subsidiary of Kohinoor Maple leaf group, an investment group that also owns stakes in the 80.0 textiles and power sectors. The company has installed capacity of c3.4mtpa, with a market share of c7%, mainly 70.0 serving the market in Punjab near Lahore. Maple Leaf operates two grey cement lines and a single white cement QUESTIONS line, where Maple Leaf holds a 90% market share. Exports represented 18% of FY9M16 total sales, where the main 60.0 export destinations are Africa, the Gulf and other Asian markets. In late 2015, Maple Leaf Cement announced that 50.0 its wholly-owned subsidiary company, Maple Leaf Power Limited, had signed an agreement for setting up a 40-MW imported coal-fired power plant in Mianwali, which is scheduled for commencing operations in 2H17. The project is 1. Do you plan on adding additional capacity to meet the expected growing demand? aimed at reducing Maple Leaf’s dependence on the troubled national grid; hence, achieving higher utilisation levels, ...... along with providing a hedge against the risk of higher energy prices. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Is there an expected dividend payout range going forward?

INVESTMENT THESIS ...... (PKR) Maple Leaf Cement has been witnessing recently a pick-up in utilisation rate, in line with the cement market sentiment Valuation Statistics 2013a 2014a 2015a 9M16a (TTM) in Pakistan, where UR in FY15 stood at 84%, vs. 76% in 2013. In 9M16, production volumes grew 10%. The cement EPS 6.11 5.36 6.55 8.76 3. What is your planned CAPEX in the medium term? industry in Pakistan is expecting a surge in demand levels from growing infrastructure projects, on the back of the DPS 0.00 0.00 1.00 2.50 ...... China-Pakistan Economic Corridor, along with a decent pipeline of government-supported projects, which has led BVPS 20.51 25.85 31.57 37.60 to a number of competitors announcing plans for capacity additions, after installed capacity had remained almost unchanged since 2011. The company paid off its PKR8bn Sukuk issuance,that was due for payment in 2018, removing 4. Are export levels expected to regain momentum in the coming years? P/E (x) 17.2 19.6 16.0 12.0 a debt burden that was pressuring the company’s bottom-line. Accordingly, the company paid its first dividend over ...... Dividend Yield 0.0% 0.0% 1.0% 2.4% the past three years, through a PKR1/share cash dividend for FY15 and an interim cash dividend of PKR1.5/share for P/BV (x) 5.1 4.1 3.3 2.8 9M16. In 9M16, the company’s net profit grew stellar 49%, on the back of 12% growth in sales (12%). 5. What are the potential new markets, in the wake of demand slowdown seen in a number of export destinations? FCF Yield 8.2% 9.4% 8.4% 13.2% ...... EV / EBITDA (x) 9.0 8.7 8.0 6.7

6. What amount of cost saving, if any, do you forecast from the coal plant? And when do you expect it to be reflected on your financials? Key Performance Ratios 2013a 2014a 2015a 9M16a (TTM) ...... Financial Statements - June Year End (PKR mn) Revenue Growth 12.3% 9.3% 9.2% 11.6%

Balance Sheet 2013a 2014a 2015a 9M16a (TTM) EBITDA Margin 37.4% 35.4% 35.4% 38.4% Current Assets 6,683 7,145 7,439 8,538 EBIT Margin 27.9% 26.5% 26.8% 30.3% Net Fixed Assets 25,630 24,706 23,721 22,806 Effective Tax Rate 2.0% -21.2% -23.3% -24.1% Intangibles & Others 60 60 62 72 ROAE 27.3% 21.4% 21.4% 24.6% Total Assets 32,373 31,911 31,221 31,416 Current Liabilities (Including Debt) 8,569 7,133 8,144 7,225 ROAIC 21.6% 22.2% 22.9% 22.7% Long-Term Liabilities (Including Debt) 11,982 10,138 5,414 4,348 DPO 0.0% 0.0% 15.3% 28.5% Total Net Worth 11,823 14,641 17,663 19,844 Net Debt (Cash) / Equity (x) 0.70 0.39 0.29 0.15 Minority Interest - - - - Net Debt (Cash) / EBITDA (x) 1.28 0.85 0.70 0.35 Total Equity & Liabilities 32,373 31,911 31,221 31,416 Net Debt 8,278 5,698 5,147 3,066 Company and Stock Data Income Statement Price (PKR) 104.95 on 21 August 2016 Revenue 17,357 18,969 20,720 22,592 Bloomberg / Reuters MLCF PA / N/A EBITDA 6,488 6,717 7,334 8,669 MKT Cap (mn) / Shares (mn) PKR55,386 / 528 EBIT 4,841 5,027 5,562 6,852 3M ADVT (mn) USD1.3 EBT 3,163 3,590 4,501 6,251 Float 44% Net Income 3,225 2,830 3,454 4,615 Foreign Ownership Limit N/A

Cash Flow Statement Major Shareholders CF from Operations 5,044 5,952 5,466 8,037 Kohinoor Textile Mil 55% CF from Investments (484) (756) (718) (615) CF from Finance & Non Operating CF (5,298) (5,176) (4,324) (7,338)

Source: Maple Leaf Cement Factory, EFG Hermes, and Bloomberg

Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] 112 113 QATAR

DOHA BANK 116 Year-end December 2013a 2014a 2015e 2016f 2017f OOREDOO GROUP 118 Nominal GDP (USD bn) 201.9 210.1 166.5 153.2 168.3 QATAR INSURANCE COMPANY | QIC 120 Real GDP growth (%) 6.2 4.2 4.1 3.4 4.1 CPI inflation, annual average (%) 3.1 3.0 1.5 3.6 2.0 Current account balance (USD bn) 62.5 49.4 13.8 (7.6) (7.4) Current account balance (% of GDP) 31.0 23.5 8.3 (6.1) (5.7) Fiscal balance (USD bn) 28.9 33.9 0.4 (4.1) (1.8) Fiscal balance (% of GDP) 14.3 16.1 0.2 (3.4) (1.0) Population (mn) 2.0 2.2 2.4 2.6 2.7

Source: Qatar Central Bank, IMF, and EFG Hermes estimates Share Price Performance Relative to QE Index (Rebased) DOHA BANK FAIR VALUE QAR32.00 RATING SELL www.dohabank.com.qa 60.0 Doha Bank (QAR) QE Index

55.0 QATAR

50.0 Financials

INVESTMENT THESIS 45.0 Doha Bank is Qatar’s fifth largest bank by loans, with an estimated market share of 8%. Its core franchise has been traditionally retail, but the bank has been recently refocusing on the corporate sector, and mainly in contracting and 40.0 trade finance, while its exposure to the public sector is small and accounts for only c8% of loans. We expect a sharp QUESTIONS slowdown in loan grwoth in 2016-17 compared to 2014-15, due to tight banking sector liquidity and a cautious 35.0 approach to asset growth. Contractors has been an area of strong growth for Doha, but the bank is aiming to lower its 27% lending market share in this segment, due to credit quality risks. Provisioning linked to contractors is a source 30.0 of downside risks to earnings. 1. Funding costs fell for Doha Bank slightly Q-o-Q in 2Q16. Is it due to the bank letting go some expensive deposits or is there a trend of stabilization of funding costs pressures in the Qatar banking system? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 VALUATION & RISKS 21 Nov 15 We value Doha Bank using a Discounted Equity Cash Flow technique. Equity cash flows are calculated by subtracting from our net income forecasts the amount that needs to be set aside in order to its core equity tier-1 ratio is maintained 2. NPLs have fallen by 11% in June 2016 versus December 2015. Was it driven by write-offs and what are your expectations for the rest of the year? (QAR) above a minimum level (which we set at 10.5%). We use explicit forecasts for eight years and calculate a terminal Valuation Statistics 2015a 2016e 2017e 2018e ...... value thereafter. We use a discount rate of 10.5% and a long-term growth rate of 3%. Risks to our forecasts and fair EPS 4.66 4.24 4.64 5.17 value include stronger than anticipated competition in lending pricing driving a strong decline in spreads and higher- DPS 3.00 3.00 3.50 3.50 3. If we look at system loan growth statistics, there has been an important slowdown in loan growth to the private sector. Which segments in your view are seeing an than-expected provisioning costs. BVPS 32.64 32.50 32.27 32.56 important deceleration in terms of business activity? ...... P/E (x) 8.5 9.4 8.6 7.7 Dividend Yield 7.5% 7.5% 8.8% 8.8% 4. Has the bank increased the share of non-resident deposits to total deposits over the past two years and to which markets? P/BV (x) 1.2 1.2 1.2 1.2 ...... Mkt Cap / Deposits 19.5% 18.4% 17.3% 15.7%

ROAE 14.4% 13.0% 14.3% 15.9% 5. Are you comfortable with your current capital position or will you be looking at raising capital within the next year? ROAA 1.5% 1.3% 1.3% 1.4% ...... Financial Statements - December Year End (QAR mn)

Balance Sheet 2015a 2016e 2017e 2018e 6. Has the central bank communicated if the 100% LDR ceiling will be applicable by the end of 2017 or if there will be a further delay in the implementation date? Key Performance Ratios 2015a 2016e 2017e 2018e Cash & Central Bank 3,563 3,356 3,676 3,913 ...... Growth in Loans 14.5% 3.7% 5.8% 7.9% Interbank Assets 10,385 11,187 10,672 11,739 Loans (Net) 55,615 57,675 61,011 65,802 Growth in Deposits 14.8% 6.0% 6.0% 10.0% Financial Investments 12,207 13,428 14,502 15,517 Loans / Deposits 105.4% 103.1% 102.9% 100.9% Fixed & Other Assets 1,539 1,641 1,698 1,738 Growth in Net Interest Income 5.5% 1.3% 4.1% 7.8% Total Assets 83,309 87,286 91,558 98,709 Growth in Non-Interest Income -16.8% 7.1% 6.2% 7.2% Due to Banks 8,776 8,729 9,156 9,871 Net Interest Spread 2.48% 2.28% 2.25% 2.30% Customer Deposits 52,767 55,933 59,289 65,217 Net Interest Margin 2.67% 2.51% 2.48% 2.51% Bonds & Long-Term Loans 6,040 6,240 6,440 6,640 Cost / Income 36.7% 35.8% 34.9% 34.0% Dividend Payable & Other Liabilities 3,294 3,987 4,337 4,567 Total Liabilities 70,877 74,888 79,221 86,295 NPL Ratio 3.3% 3.9% 4.6% 5.1% Minority Interest - - - - NPL Coverage Ratio 109.0% 110.1% 97.6% 90.4% Shareholders' Equity & Other Capital 12,432 12,398 12,337 12,414 Capital Adequacy Ratio 15.7% 15.1% 14.5% 13.7% Total Shareholders' Equity & Liabilities 83,309 87,286 91,558 98,709

Income Statement Company and Stock Data Net Interest Income 2,048 2,075 2,161 2,329 Price (QAR) 39.75 on 21 August 2016 Non-Interest Income 764 818 869 932 Bloomberg / Reuters DHBK QD / DOBK.QA Total Banking Income 2,812 2,893 3,030 3,261 MKT Cap (mn) / Shares (mn) QAR10,270 / 258 Operating Expense (1,031) (1,035) (1,056) (1,109) 3M ADVT (mn) USD0.9 Total Provisions (403) (539) (549) (589) Float 83% Other Income/Expense 0 0 0 0 Income before Taxes 1,378 1,320 1,425 1,563 Foreign Ownership Limit 49% Net Income 1,374 1,315 1,418 1,556 Major Shareholders Cost of Tier-1 bonds (170) (220) (220) (220) QIA 17% Net Attributable Income 1,204 1,095 1,198 1,336

Source: Doha Bank, EFG Hermes estimates Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 116 117 Share Price Performance Relative to QE Index (Rebased) OOREDOO GROUP FAIR VALUE QAR118.0 RATING BUY www.ooredoo.com 110.0 Ooredoo Group (QAR) QE Index 104.0 QATAR 98.0 92.0 Telecommunication Services 86.0 INVESTMENT THESIS 80.0 Ooredoo, Qatar’s incumbent operator, offers exposure to a diversified telecom portfolio, with growth assets 74.0 (Indonesia, Iraq, Algeria, Myanmar) supported by cash cows (Qatar, Kuwait, Tunisia). Ooredoo, which lost its local 68.0 market monopoly in July 2009 when Vodafone Qatar launched operations, now has operations in 16 countries and QUESTIONS a subscriber base exceeding 114 million. A clear and focused strategy and execution, particularly in international 62.0 expansion, sets Ooredoo apart from other regional incumbents, in our view. Ooredoo fully deployed its balance 56.0 sheet to undertake substantial acquisitions (51% in Kuwait’s Wataniya Telecom and 65% in Indonesia’s Indosat). 50.0 With significant backing from the Government of Qatar (52% direct stake) and a healthy balance sheet, Ooredoo 1. What are the reasons for the noticeable margin improvement in Iraq? Is this expected to continue going forward and when will revenue start picking up? still has the ability to expand its footprint. After pulling out of the race for Vivendi’s 53% stake in Maroc Telecom, ...... and after obtaining a greenfield licence in Myanmar, Ooredoo is still looking for expansion opportunities, but we believe the medium-term focus will be mostly on overcoming challenging operating dynamics in Iraq, Kuwait, 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. How do you evaluate the regulatory environment in Qatar? How does management perceive competition in Qatar, especially in 4G services? Tunisia and Indonesia. Do you expect any cuts in MTRs? Valuation Statistics (QAR) 2015a 2016e 2017e 2018e ...... VALUATION & RISKS EPS 6.61 8.01 9.55 10.73 We use a DCF-based SOTP model to value Ooredoo, yielding an equity value of QAR42 billion (USD11.5 billion), or DPS 3.00 4.00 5.00 6.00 3. Are there any consolidation opportunities in any of Ooredoo’s markets (e.g. Indonesia)? Are there opportunities for infrastructure sharing? QAR131/share. We assign a 10% discount factor to our SOTP valuation to account for the low share liquidity, which BVPS 68.09 81.36 85.91 90.65 ...... leads to a fair value of QAR118/share. The Qatari operation remains the largest contributor to valuation, followed by Ooredoo Kuwait group (Wataniya). An improvement in share liquidity or a dividend distribution higher ahead of P/E (x) 15.96 13.17 11.04 9.83 our estimate should lead to a re-rating of the stock, in our view, although the latter depends to a large extent on 4. When do you expect to see a turnaround at the Kuwaiti operation and would Ooredoo be part of a potential tower sale in Kuwait? Dividend Yield 2.8% 3.8% 4.7% 5.7% improvement in the performance of key subsidiaries. Downside risks to our valuation include stronger-than-expected ...... competition and pricing pressures (Qatar, Kuwait, Indonesia, Algeria), and regulatory and political issues (Kuwait, P/BV (x) 1.5 1.3 1.2 1.2 Tunisia and Iraq), in addition to the ongoing conflict in Iraq that is weighing on the entire market. Earnings are subject FCF Yield 6.1% 10.2% 12.9% 15.0% 5. Why did Ooredoo cut its 2015 dividend? Are there any plans to increase dividends in 2016? to negative impact by adverse FX movements given the company’s significant exposure to Indonesia, Iraq and Kuwait. EV / EBITDA (x) 5.9 5.8 5.6 5.4 EV / Sub. (QAR) 759 709 668 636 ......

Key Performance Ratios 2015a 2016e 2017e 2018e Total Subscribers (mn) 117 124 131 138 (QAR mn) Financial Statements - December Year End Revenue Growth -3.2% 3.1% 2.6% 2.9% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 40.5% 40.9% 41.1% 41.4% Current Assets 26,454 21,982 18,879 16,708 EBIT Margin 15.8% 17.9% 18.7% 19.1% Net Fixed Assets 33,745 36,361 36,994 37,460 Effective Tax Rate -24.4% -26.2% -24.5% -23.3% Intangibles & Others 33,953 34,644 32,842 31,001 ROAE 9.4% 10.7% 11.4% 12.2% Total Assets 94,152 92,986 88,715 85,169 ROAIC 8.0% 8.8% 9.3% 9.9% Current Liabilities (Including Debt) 26,376 23,995 23,459 24,629 Long-Term Liabilities (Including Debt) 39,403 34,940 29,105 22,183 DPO 45.4% 49.9% 52.3% 55.9% Total Net Worth 21,810 26,062 27,520 29,036 Net Debt (Cash) / Equity (x) 0.87 0.65 0.53 0.41 Minority Interest 6,563 7,990 8,630 9,321 Net Debt (Cash) / EBITDA (x) 1.89 1.64 1.37 1.09 Total Equity & Liabilities 94,152 92,986 88,715 85,169 Net Debt 24,614 22,198 19,132 15,747 Company and Stock Data Price (QAR) 105.50 on 21 August 2016 Income Statement Revenue 32,161 33,143 33,994 34,974 Bloomberg / Reuters ORDS QD / ORDS.QA (mn) (mn) EBITDA 13,018 13,566 13,988 14,463 MKT Cap / Shares QAR33,794 / 320 EBIT 5,073 5,937 6,371 6,688 3M ADVT (mn) USD2.3 EBT 3,033 4,266 4,902 5,386 Float 21% Net Income 2,118 2,567 3,060 3,438 Foreign Ownership Limit No Limit

Cash Flow Statement Major Shareholders CF from Operations 10,588 11,917 12,403 12,826 State of Qatar 52% CF from Investments (8,510) (6,572) (6,379) (6,332) Other government-related entities 18% CF from Finance & Non Operating CF (1,343) (7,525) (9,436) (8,900) ADIA 10%

Source: Ooredoo Group, EFG Hermes estimates

Omar Maher Karim Riad INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 118 119 Share Price Performance Relative to QE Index (Rebased) QATAR INSURANCE COMPANY | QIC www.qatarinsurance.com Qatar Insurance Company (QAR) QE Index 95 90 QATAR 85 Financials 80 INVESTMENT THESIS 75 QIC is the largest and oldest insurance company in Qatar, with a 30% market share of premiums in its domestic market. It also has insurance operations in UAE, Kuwait and Oman. Around 33% of QIC premiums are sourced from 70 Qatar and the GCC, while the remaining 67% of premiums are from its international business, and mainly from its 65 QUESTIONS global reinsurer Qatar Re. QIC also bought Lloyds’ Antares in 2014. Qatar Re was revamped in 2013 and it aspires to be positioned amongst the top-10 reinsurers worldwide. We expect average premium growth for QIC of 17% per 60 annum in 2016-17, and the combined ratio to fall to 95% in 2017e from 96.8% in 2015, mainly driven by Qatar Re. 55 Premium growth in Qatar should be in line with GDP growth but there are upside risks on the final implementation 1. According to Moody’s, Qatar has become the fastest growing insurance market in the GCC, with a CAGR of 20.7% between 2006 and 2014, driven partly by the of mandatory health insurance, for which there is no set date for now. implementation of large infrastructure projects to cater for the 2022 FIFA World Cup. In the meantime, Qatar has one of the lowest penetration rates globally, at 1.0% in 2014. Do you think this penetration rate is structural or not and what level of premium growth can we expect for Qatar in the next two years? 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 ...... VALUATION & RISKS We value Qatar Insurance Company (QIC) using a residual income model. Residual income or excess return to (QAR) shareholders is calculated subtracting from our net income forecasts the equity cost, or shareholders’ equity multiplied Valuation Statistics 2015a 2016e 2017e 2018e 2. Compulsory medical insurance for all workers in Qatar could be an area of growth going forward; is there a final implementation date for mandatory health insurance? by cost of equity. We use explicit forecasts for five years and calculate a terminal value thereafter. We use a cost of EPS 5.65 4.53 5.09 5.76 ...... equity for Qatar of 10.5% and a long-term growth rate of 3.5%. Downside risks to our earnings forecasts, valuation DPS 2.50 1.50 2.00 2.50 and rating for QIC include underwriting risks (larger than expected claim costs because of large, unexpected events) BVPS 28.98 33.64 36.73 39.99 3. Which is the most attractive market in terms of premium growth and profitability in the GCC? as well as capital market risks...... P/E (x) 15.9 19.9 17.7 15.6 Dividend Yield 2.8% 1.7% 2.2% 2.8% 4. Impact on QIC of Brexit in light of ownership of Antares in the Lloyds’ market P/BV (x) 3.1 2.7 2.5 2.3 ......

5. Qatar Re: which segments of the reinsurance market is Qatar Re focusing on? Do you expect the recent growth in premiums for Qatar Re of c40-50% to sustain in the Financial Statements - December Year End (QAR mn) ROAE 19.6% 16.2% 14.5% 15.0% ROAA 5.2% 3.9% 3.6% 3.5% coming two years? Balance Sheet 2015a 2016e 2017e 2018e ...... Cash and Investments 11,341 16,533 18,518 20,963 Key Performance Ratios 2015a 2016e 2017e 2018e Premium Receivables 6,617 8,271 10,257 12,103 Growth in Gross Written Premium 49.0% 15.0% 17.0% 14.0% 6. As the investment portfolio will have a greater contribution of fixed income vs equities, which level of investment yield we should expect going forward? Investment yields Reinsurance Recoveries 5,607 6,884 8,046 9,947 Growth in Net Written Premium 65.0% 13.0% 17.0% 15.0% Goodwill and Intangibles 419 420 420 420 have been 6-7% over the past few years. Growth in Net Earned Premium 57.0% 16.0% 18.0% 17.0% Fixed & Other Assets 125 127 135 148 ...... Growth in Underwriting Result 1326.0% 43.0% 56.0% 8.0% Total Assets 24,108 32,236 37,376 43,581 Growth in Investment Income -16.0% -2.0% 1.0% 15.0% Accounts Payable 2,504 3,004 3,365 3,769 7. How do you expect ROE to move following the recent capital increase? Growth in Insurance Profit 4.00% 7.00% 16.00% 13.00% Borrowings 364 899 811 946 ...... Claims Reserve and Provision for Unearned Premium 15,246 19,670 23,665 28,420 Growth in Net Attributable Income 4.00% 5.00% 13.00% 13.00% Total Liabilities 18,114 23,573 27,841 33,135 Retention Ratio 85.7% 84.0% 84.0% 85.0% Minority Interest 182 190 195 200 Claims Ratio 66.9% 67.0% 67.0% 69.0% Shareholders' Equity 5,812 8,473 9,340 10,246 Expense Ratio 29.9% 29.1% 27.8% 26.2% Total Shareholders' Equity & Liabilities 24,108 32,236 37,376 43,581 Combined Ratio 96.8% 96.1% 94.8% 95.2%

Income Statement Company and Stock Data Net Written Premium 7,157 8,063 9,434 10,883 Price (QAR) 90.0 on 21 August 2016 Change in Unearned Premium (1,370) (1,371) (1,509) (1,632) Bloomberg / Reuters QATI QD / QINS.QA Net Earned Premium 5,787 6,693 7,925 9,251 MKT Cap (mn) / Shares (mn) QAR21,702 / 241.1 Total Claim Expenses (5,602) (6,429) (7,513) (8,807) 3M ADVT (mn) USD1.2 Underwriting Result 185 264 412 444 Float c.76% Income from Investments 712 697 701 809 Foreign Ownership Limit 49% Other Insurance Income 9 10 12 15 Insurance Profit 906 971 1,125 1,268 Major Shareholders Other Income and Expenses 158 141 127 144 Government of Qatar: 14.0% Minority Interest (20) (20) (23) (24) Qatari Royal Family & Associates: 10% Net Attributable Income 1,043 1,092 1,229 1,388

Source: Qatar Insurance Co., EFG Hermes Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 120 121 SAUDI ARABIA

ADVANCED PETROCHEMICALS 124 Year-end December 2013a 2014a 2015e 2016f 2017f AL HAMMADI DEVELOPMENT & INVESTMENT 126 Nominal GDP (USD bn) 744.3 753.8 646.0 629.7 680.3 AL HASSAN GHAZI SHAKER COMPANY 128 Real GDP growth (%) 2.7 3.6 3.5 0.0 1.1 AL HOKAIR GROUP FOR TOURISM & DEVELOPMENT 130 CPI inflation, annual average (%) 3.5 2.7 2.2 4.5 3.0 AL RAJHI BANK 132 Current account balance (USD bn) 135.4 73.7 (53.5) (61.9) (43.5) BAWAN COMPANY 134 Current account balance (% of GDP) 18.2 9.8 (8.3) (9.8) (6.4) BUDGET SAUDI 136 Fiscal balance (USD bn) 42.9 (25.9) (97.9) (73.3) (61.1) BUPA ARABIA 138 Fiscal balance (% of GDP) 5.8 (3.4) (15.2) (11.6) (9.0) DALLAH HEALTHCARE 140 Population (mn) 30.0 30.8 31.5 32.3 33.1 DAR AL ARKAN 142 Source: SAMA, General Authority for Statistics, IMF and EFG Hermes estimates EMAAR THE ECONOMIC CITY 144 MAADEN 146 NATIONAL AGRICULTURE DEVELOPMENT (NADEC) 148 RED SEA HOUSING SERVICES 150 SAUDI CERAMICS 152 SAUDI INDUSTRIAL SERVICES COMPANY | SISCO 154 UNITED ELECTRONICS COMPANY (EXTRA) 156 YAMAMA CEMENT 158 Share Price Performance Relative to TASI (Rebased) ADVANCED PETROCHEMICALS FAIR VALUE SAR39.00 RATING NEUTRAL www.advancedpetrochem.com Advanced Petrochemicals (SAR) TASI 45.0 43.0 SAUDI ARABIA 41.0 39.0 Materials INVESTMENT THESIS 37.0 Headquartered in Al Jubail in Saudi Arabia, Advanced Petrochemical Company (Advanced) is a fully-integrated 35.0 polypropylene (PP) producer, with a total capacity of 450,000 tonnes per year (tpy). Advanced was the first producer 33.0 in the region to utilise propane dehydrogenation (PDH) technology. Advanced’s global competitive advantage stems 31.0 QUESTIONS from: i) its cheaper propane feedstock costs compared to global peers, ii) ten-year PP off-take agreements with 29.0 global distributors, and iii) its proximity to the fast growing markets in Asia. Advanced’s profitability depends 27.0 largely on the spread between polypropylene and propane prices. Advanced’s South Korean expansion (600,000tpy 25.0 propylene) started commercial operations in 2Q2016 and immediately contributed positively to the bottom line, 1. Given that there is significant PP capacity coming on line over the next two-three years, what impact do you expect on spreads, and how does management plan to mitigate albeit a minimal contribution given the low propylene price environment. We have a Neutral rating on Advanced. the impact of these capacity additions (e.g. lower prices and spreads, etc.)? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 VALUATION & RISKS We value Advanced using a discounted cash flow (DCF) methodology, which yields a fair value (FV) of SAR39/ 2. Is there any update on potential future changes to the feedstock pricing mechanism from the government? (SAR) share. Our DCF exercise is highly biased to our forecasts for PP prices and propane feedstock costs in Saudi Arabia. Valuation Statistics 2015a 2016e 2017e 2018e ...... Advanced’s earnings are resilient to oil price movements, making it an ideal defensive play in the current volatile EPS 3.52 2.97 2.83 3.25 environment, especially considering the company’s attractive, low risk dividend payouts, its clean balance sheet and DPS 2.50 2.50 2.50 2.50 3. The company has been very active in reducing costs over the past few years, but can this be sustained going forward? proactive management. Downside risks to our forecasts include: i) a strong correction in PP-propane spreads, and BVPS 12.75 13.22 13.56 14.31 What other possible productivity improvements / cost reductions are there left for the company to execute? ii) a further increase in energy prices in Saudi...... P/E (x) 10.51 12.43 13.05 11.379 Dividend Yield 6.8% 6.8% 6.8% 6.8% 4. Has the South Korean JV reached full operations yet? Are you considering further investments in Asia or further expansion at the Korean JV? P/BV (x) 2.9 2.8 2.7 2.6 ...... FCF Yield 8.3% 7.6% 7.7% 9.0% EV / EBITDA (x) 8.4 9.4 9.9 9.0 5. What is the company’s strategy for the coming few years? How does the company plan to increase returns to shareholders, in light of the current weak price environment? Are you considering organic or inorganic expansions? Will the company continue to invest along the propylene value chain, or is the company open to Key Performance Ratios 2015a 2016e 2017e 2018e investing in other commodities? Regarding the recent strategic stake that Advanced purchased in a listed company, what was the rationale behind this? Revenue Growth -21.7% -13.2% 2.0% 7.7% ...... (SAR mn) Financial Statements - December Year End EBITDA Margin 40.1% 41.1% 38.2% 39.2% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 31.2% 30.5% 27.4% 28.9% Current Assets 453 865 956 1,150 Effective Tax Rate 2.9% 3.0% 2.8% 2.8% Net Fixed Assets 2,179 2,143 2,060 1,974 ROAE 28.3% 22.9% 21.2% 23.3% Intangibles & Others 1,254 888 904 928 Total Assets 3,886 3,897 3,920 4,051 ROAIC 23.6% 18.4% 18.0% 20.7% Current Liabilities (Including Debt) 283 240 208 1,191 DPO 71.1% 84.0% 88.3% 76.9% Long-Term Liabilities (Including Debt) 1,094 1,054 1,044 46 Net Debt (Cash) / Equity (x) 0.40 0.21 0.16 0.09 Total Net Worth 2,509 2,602 2,668 2,815 Net Debt (Cash) / EBITDA (x) 1.05 0.64 0.53 0.28 Minority Interest - - - - Total Equity & Liabilities 3,886 3,897 3,920 4,051 Net Debt 1,003 540 424 246 Company and Stock Data Price (SAR) 36.97 on 21 August 2016 Income Statement Revenue 2,377 2,064 2,106 2,269 Bloomberg / Reuters APPC AB / 2330.SE (mn) (mn) EBITDA 953 848 804 889 MKT Cap / Shares SAR7,275 / 197 EBIT 743 630 577 655 3M ADVT (mn) USD4.8 EBT 713 603 574 658 Float 94% Net Income 692 585 557 639 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 860 799 771 838 National Polypropylene Company 8% CF from Investments (207) (185) (146) (152) General Organization For Social Insurance 6% CF from Finance & Non Operating CF (1,453) (191) (549) (518)

Source: Advanced Petrochemical Company, EFG Hermes estimates

Yousef Husseini INSIGHTS INTO THE NEW REALITY [email protected] 124 125 Share Price Performance Relative to TASI (Rebased) AL HAMMADI DEVELOPMENT AND INVESTMENT www.alhammadi.com Al Hammadi Development & Investment (SAR) TASI 58.0 SAUDI ARABIA 53.0

48.0 Materials BUSINESS DESCIPTION Al Hammadi owns and operates two hospitals in Saudi Arabia, which are in Riyadh with a total capacity of 728 beds, 43.0 Al Hammadi Hospital Olaya and Al Hammadi Hospital Al Suwaidi, which was inaugurated in 2015 with a capacity 38.0 of 428 beds and 64 outpatient clinics and 13 major operation rooms. A third hospital in Al Nozha (Northeast of QUESTIONS Riyadh) is under construction with a capacity of 600 beds and 64 clinics that is expected to start trial operations in 33.0 2H16 at an investment cost of SAR683mn partially financed from the IPO proceeds. Al Hammadi raised capital of cSAR630mn in 2014 through an IPO with net proceeds of SAR605mn, to finance ongoing expansions. Al Hammadi 28.0 announced that it is set to re-open Al Olaya Hospital in August 2016 as it has been closed since February 2016 due 1. What is the status of Al Olaya hospital now, have utilisation rates started to recover, and when do you expect them to recover to pre-incident utilisation levels? to an electrical contact incident that led to the hospital’s closure; existing patients were transferred to Al Suwaidi ...... hospital. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. When do you expect to inaugurate Al Nozha and commence commercial operations?

INVESTMENT THESIS ...... Valuation Statistics (SAR) 2013a 2014a 2015a 1H16a (TTM) Al Hammadi is set to see strong growth in the medium term on the back of aggressive bed additions, along with ramp-ups in Al Suwaidi. However there will be delays in the ramp-up due to the electric incident that took place EPS 1.33 1.24 1.18 0.88 3. What is your current government exposure? DPS 0.00 0.63 0.75 0.75 in Al Olaya hospital in early 2016. Al Hammadi 1H16 net income dropped 45% Y-o-Y to SAR42mn, while revenue ...... inched-up 6% Y-o-Y. The significant drop in earnings was due to i) the closure of Olaya hospital for almost all BVPS 6.97 11.00 11.55 11.16 of 1H16; and ii) a significant margin drop due to increased expenses and depreciation on the inauguration of 4. What are your current Saudisation levels? the Al Suwaidi Hospital. The EBITDA margin was down 5%-point Y-o-Y, and EBIT margin 12%-point. Overdue P/E (x) 27.2 29.1 30.6 41.0 payments from the government remain a major risk as government referrals and contracts represent a major part ...... Dividend Yield 0.0% 1.7% 2.1% 2.1% of its revenue. In the medium to long term, growth should be supported by the government’s announced plans to P/BV (x) 5.2 3.3 3.1 3.2 gradually extend the public healthcare services to the private sector, which is part of the government’s vision 2030. FCF Yield 3.0% 3.9% 1.3% -1.0% 5. Are you facing troubles issuing and renewing visas for your expats? EV / EBITDA (x) 38.2 33.1 26.1 27.4 ......

6. What is your view on the healthcare plan outlined in Vision 2030? Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) ...... Financial Statements - December Year End (SAR mn) Revenue Growth 14.6% 11.0% 16.5% 2.7% EBITDA Margin 29.0% 30.1% 32.8% 30.4% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) 7. What are your three latest contract renewals, did they see better or lower terms? EBIT Margin 25.8% 27.2% 27.3% 21.7% Current Assets 209 707 380 440 ...... Net Fixed Assets 1,028 1,390 1,556 1,600 Effective Tax Rate -3.6% -4.0% -6.4% -7.8% Intangibles & Others - - - - ROAE 19.3% 13.5% 10.4% 7.8% Total Assets 1,236 2,097 1,936 2,039 ROAIC 11.5% 8.2% 8.0% 6.8% Current Liabilities (Including Debt) 58 165 241 308 DPO 0.0% 50.5% 63.6% N/M Long-Term Liabilities (Including Debt) 593 613 308 393 Total Net Worth 586 1,320 1,386 1,339 Net Debt (Cash) / Equity (x) 0.92 0.12 0.24 0.35 Minority Interest - - - - Net Debt (Cash) / EBITDA (x) 4.28 1.06 1.83 2.71 Total Equity & Liabilities 1,236 2,097 1,936 2,039 Net Debt 538 153 336 474 Company and Stock Data Income Statement Price (SAR) 36.07 on 21 August 2016 Revenue 434 482 561 577 Bloomberg / Reuters ALHAMMAD AB / 4007.SE EBITDA 126 145 184 175 MKT Cap (mn) / Shares (mn) SAR4,328 / 120 EBIT 112 131 153 125 3M ADVT (mn) USD1.6 EBT 116 129 141 106 Float 59% Net Income 112 129 141 106 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 97 156 66 (35) Feasibility Med Oppo 21% CF from Investments (391) (376) (175) (148) Al Hammadi Saleh Bin 10% CF from Finance & Non Operating CF 273 722 (346) 3 Al Hammadi Abdul Azi 10% Source: AL HammadiI Development and Investment, EFG Hermes, and Bloomberg

Tarek El-Shawarby Adham El Badrawy INSIGHTS INTO THE NEW REALITY Tarek El-Shawarby [email protected] 126 127 Share Price Performance Relative to TASI (Rebased) AL HASSAN GHAZI SHAKER COMPANY FAIR VALUE SAR54.44 RATING BUY www.shaker.com.sa 40.0 Shaker (SAR) TASI SAUDI ARABIA 35.0

Consumer Discretionary 30.0 INVESTMENT THESIS Al-Hassan Ghazi Ibrahim Shaker Company (Shaker) is the exclusive producer of LG Air Conditioners (AC) in Saudi 25.0 Arabia (c20% market share) through LG Shaker (49% owned by Shaker and 51% by LG Korea) and a distributor of a diversified range of home appliances and electronics. Shaker is a growth story that will benefit from favourable QUESTIONS demographics, real estate developments and a rise in disposable income. Management is targeting higher local and 20.0 regional market share through growing production, there is anecdotal evidence of a market shift in preference to LG AC products due to their good quality and after-sales service. We believe Shaker should report better results in the 15.0 coming years as the company has been restructuring its sales functions with a plan to focus on the projects market, 1. What is the company’s current strategic focus? Are they looking to venture into new business segments? where their market share is low versus the residential market, which is crowded and has lower margins. Also Shaker ...... is now is ready with inventory of new EER ACs. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Are the new Energy Efficiency Requirements implemented strictly on ACs, and what advantage does Shaker have vs. competitors?

VALUATION & RISKS ...... (SAR) We value Shaker using a DCF, applying a cost-of-equity of 10.25% and a perpetual growth rate of 3.25%. We expect Valuation Statistics 2015a 2016e 2017e 2018e Shaker to have an advantage over AC importers, as the company has already started producing ACs that comply with EPS 2.53 2.65 2.93 3.19 3. How is the company working to offset the current weak demand environment? the new energy efficiency requirement (EER), that is ready to be sold in the market. The main downside risk would be DPS 2.22 1.67 2.50 2.50 ...... a rise in competition, however, increased focus on exports and a market shift to high-margin products (split) may limit BVPS 14.84 15.82 16.25 16.94 this risk. Upside risks include stronger than- expected demand that would necessitate further increases in production capacity and/or setting up a new chillers factory. 4. Is there any update on the production of chillers? P/E (x) 7.88 7.55 6.80 6.26 ...... Dividend Yield 11.1% 8.4% 12.5% 12.5% P/BV (x) 1.3 1.3 1.2 1.2 FCF Yield 11.0% 7.2% 6.2% 8.1% EV / EBITDA (x) 8.2 7.4 6.6 6.0

Key Forecast Drivers 2015a 2016e 2017e 2018e Revenue Growth 18.4% 8.0% 10.0% 11.0% Financial Statements - December Year End (SAR mn) EBITDA Margin 8.8% 9.0% 9.1% 9.0% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 8.1% 8.3% 8.5% 8.4% Current Assets 1,321 1,414 1,549 1,689 Effective Tax Rate -5.7% -5.7% -5.7% -5.7% Net Fixed Assets 231 237 242 247 ROAE 17.3% 17.3% 18.3% 19.2% Intangibles & Others 517 517 517 517 Total Assets 2,069 2,167 2,309 2,454 ROAIC 9.2% 10.0% 10.7% 11.2% Current Liabilities (Including Debt) 1,092 1,123 1,230 1,324 DPO 87.7% 63.0% 85.2% 78.4% Long-Term Liabilities (Including Debt) 39 45 52 60 Net Debt (Cash) / Equity (x) 0.62 0.59 0.63 0.64 Total Net Worth 935 997 1,024 1,067 Net Debt (Cash) / EBITDA (x) 3.62 3.28 3.25 3.12 Minority Interest 2 2 2 2 Total Equity & Liabilities 2,069 2,167 2,309 2,454 Net Debt 584 588 647 683 Company and Stock Data Price (SAR) 19.96 on 21 August 2016 Income Statement Revenue 1,843 1,990 2,189 2,430 Bloomberg / Reuters SHAKER AB / 1214.SE (mn) (mn) EBITDA 161 179 199 219 MKT Cap / Shares SAR1,257 / 63 EBIT 149 165 185 203 3M ADVT (mn) USD2.7 EBT 160 177 196 213 Float 30% Net Income 160 167 185 201 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 158 111 97 121 Lafana Holding Company: 12.2% CF from Investments (23) (20) (20) (20) Abdulqader Al Muhaidib and Sons Company: 12.2% CF from Finance & Non Operating CF (152) (101) (98) (122) Tawazon Arabia Company for Commercial Investment: 10.15%

Source: Shaker, EFG Hermes estimates

Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 128 129 Share Price Performance Relative to TASI (Rebased) AL HOKAIR GROUP FOR TOURISM & DEVELOPMENT www.alhokair.com Al Hokair Group TASI 76.0 70.0 SAUDI ARABIA 64.0 Real Estate & Hospitality 58.0 BUSINESS DESCIPTION The company’s activities are focused primarily in the hospitality and entertainment industries. The hospitality segment 52.0 includes the managing and operating of hotels and restaurants across KSA and some assets in the UAE, while the 46.0 entertainment segment entail managing and operating indoor and outdoor entertainment venues and water parks QUESTIONS in a number of locations throughout Saudi Arabia and the UAE. The company is planning to expand its operations 40.0 in both markets. In addition to its main activities, Al Hokair Group manages and operates two commercial centres. 34.0 Within the hospitality segment, the group aims to maintain its focus on the Saudi market by strengthening its leading 28.0 position in various areas; developing its current hotel portfolio and opening new mid- and upscale international brand 1. For the Group’s hospitality sector, what is the average occupancy rates across the portfolio? And how much is the contribution of the segment to total revenue and income? hotels in line with demand and based on the group’s market outlook. The group will continue to primarily target Any plans for agreements with new hotel chains? business travellers and domestic tourists. As for the entertainment segment, the group aims to strengthen its leading ...... position in the KSA, while also selectively investing in the UAE. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Could you please shed light on the evolution of occupancy rates and ADRs across the hotels portfolio, in light of the economic slowdown in Saudi Arabia and the region? (SAR) INVESTMENT THESIS Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) ...... Al Hokair Group holds 2.1% of the overall KSA market, in terms of number of available hotel rooms; with the EPS 3.56 3.57 3.45 2.87 group coming in as the third largest local hotel company in KSA. Therefore, the strong market presence of the DPS N/A 2.50 2.50 1.90 3. What is your client mix by nationality at your hospitality and entertainment divisions? company would allow it to leverage on the increasing tourism activity within the Kingdom, especially in light of the BVPS 13.79 12.90 13.85 13.84 ...... group’s agreements with a number of leading hotel brands including Holiday Inn and Novotel. Additionally the group’s exposure to the UAE hospitality market is a positive, adding further appeal to the investment opportunity, in our view. P/E (x) 8.8 8.8 9.1 10.9 Dividend Yield 0.0% 8.0% 8.0% 6.1% P/BV (x) 2.3 2.4 2.3 2.3 FCF Yield 5.8% 14.2% 12.3% 8.8% EV / EBITDA (x) 8.0 7.5 7.3 7.8

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Revenue Growth 14.2% 8.1% 20.4% 13.4% Financial Statements - December Year End (SAR mn) EBITDA Margin 30.4% 30.1% 25.8% 23.7% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 19.3% 19.1% 14.9% 12.1% Current Assets 329 268 281 335 Effective Tax Rate -1.3% -2.4% -2.3% -2.8% Net Fixed Assets 739 899 1,065 1,111 Intangibles & Others 146 95 112 126 ROAE 29.6% 26.8% 25.8% 20.8% Total Assets 1,215 1,262 1,458 1,572 ROAIC 19.1% 17.9% 15.7% 11.8% Current Liabilities (Including Debt) 269 314 380 409 DPO 0.0% 70.0% 72.5% 66.2% Long-Term Liabilities (Including Debt) 187 239 317 402 Net Debt (Cash) / Equity (x) 0.15 0.36 0.46 0.56 Total Net Worth 759 709 762 761 Minority Interest - - - - Net Debt (Cash) / EBITDA (x) 0.44 0.90 1.19 1.55 Total Equity & Liabilities 1,215 1,262 1,458 1,572 Net Debt 117 258 351 430 Company and Stock Data Price (SAR) 31.30 on 21 August 2016 Income Statement Bloomberg / Reuters AATD AB / 1820.SE Revenue 880 952 1,146 1,170 MKT Cap (mn) / Shares (mn) SAR1,722 / 55 EBITDA 268 286 296 277 3M ADVT (mn) USD5.7 EBIT 169 182 171 141 Float 100% EBT 196 196 190 158 Foreign Ownership Limit 49% Net Income 196 196 190 158 Major Shareholders Cash Flow Statement Al-Hokair Group 32% CF from Operations 196 334 344 284 Tourism Opportunities Commercial Company 25% CF from Investments (239) (160) (294) (267) CF from Finance & Non Operating CF 39 (161) (69) (20)

Source: Al Hokair Group for Tourism & Development, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 130 131 Share Price Performance Relative to TASI (Rebased) AL RAJHI BANK FAIR VALUE EGP54.00 RATING NEUTRAL www.alrajhibank.com.sa Al Rajhi Bank (SAR) TASI 65.0 SAUDI ARABIA 60.0 Financials 55.0 INVESTMENT THESIS With total assets of SAR323bn, Al Rajhi is the largest Islamic bank in Saudi Arabia and the MENA region. The bank is 50.0 the dominant player in the retail segment in Saudi Arabia, with a market share of c40% and is also a major player in 45.0 the remittance business. The traditionally strong profitability of the bank’s retail franchise came under pressure due QUESTIONS to strong price competition, low interest rate environment and regulatory caps on fees; however, spreads are turning 40.0 the corner, as retail loan pricing has stabilised, while investment in Shariah-compliant government bonds are also supporting a pick-up in investment book yield. The bank maintains a strong funding cost advantage over its peers 35.0 with a CASA deposit mix of over 90%. This should help shield Al Rajhi from rising funding costs pressures; however, 1. How do you view the current liquidity environment, and how will that challenge the sustainability of Al Rajhi’s existing deposit mix? these strengths are reflected in the bank’s premium valuations. We have a Neutral rating for Al Rajhi with a fair value ...... (FV) of SAR54.0/share. 2. The bank has reported strong improvement in margins over the past six months. What has been the key driver? 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 VALUATION & RISKS 21 Nov 15 Our fair value (FV) of SAR54.0/share is based on a two-stage discounted equity cash flow (DECF) model, where ...... (SAR) expected future cash flows accruing to equity holders are discounted using a cost-of-equity of 11.0% to arrive at our Valuation Statistics 2015a 2016e 2017e 2018e estimated FV. In the first stage, we calculate cash flows based on our detailed forecasts for the bank. In the second EPS 4.39 4.42 4.63 5.32 3. The bank has reported steady improvement in corporate loan growth over the past two quarters. Do you expect corporate loan growth to outpace retail loan growth in DPS 1.50 1.75 1.75 1.89 stage, we calculate a terminal value using a 4% terminal growth rate in cash flows beyond seven years. Key upside the near term? risks to our Neutral rating on Al Rajhi include: i) stronger-than-expected loan growth; and ii) improvement in net BVPS 27.18 28.77 31.10 33.94 ...... interest spreads. P/E (x) 12.8 12.7 12.1 10.5 Dividend Yield 2.7% 3.1% 3.1% 3.4% P/BV (x) 2.1 1.9 1.8 1.7 Mkt Cap / Deposits 35.5% 33.6% 31.1% 28.8%

ROAE 17.0% 15.8% 15.5% 16.4% ROAA 2.3% 2.2% 2.2% 2.3%

Key Forecast Drivers 2015a 2016e 2017e 2018e (SAR mn) Financial Statements - December Year End Growth in Loans 2.1% 6.7% 7.8% 8.0% Balance Sheet 2015a 2016e 2017e 2018e Growth in Deposits 0.1% 5.9% 8.0% 8.0% Cash & Central Bank 27,054 24,520 26,725 29,258 Loans / Deposits 82.0% 82.7% 82.5% 82.5% Interbank Assets 26,911 24,348 26,363 28,625 Growth in Net Interest Inc. 1.4% 5.8% 9.0% 10.0% Loans (Net) 210,218 224,284 241,770 261,194 Growth in Non-Interest Inc. -1.6% -0.2% 6.4% 7.5% Financial Investments 39,877 48,696 52,726 57,250 Net Interest Spread 3.25% 3.30% 3.34% 3.38% Fixed & Other Assets 11,560 11,178 12,242 13,195 Net Interest Margin 3.26% 3.32% 3.37% 3.41% Total Assets 315,620 333,025 359,826 389,521 Cost / Income 33.9% 34.3% 33.7% 33.2% Due to Banks 4,558 4,884 5,275 5,697 NPL Ratio 1.5% 1.9% 2.5% 2.5% Customer Deposits 256,228 271,318 293,041 316,484 NPL Coverage Ratio 176.7% 159.7% 138.6% 158.0% Bonds & Long-Term Loans - - - - Capital Adequacy Ratio 20.8% 20.4% 20.0% 19.8% Dividend Payable & Other Liabilities 10,670 10,070 10,972 12,192 Total Liabilities 271,456 286,272 309,287 334,373 Minority Interest - - - - Company and Stock Data Shareholders' Equity & Other Capital 44,164 46,753 50,539 55,148 Price (SAR) 56.04 on 21 August 2016 Total Shareholders' Equity & Liabilities 315,620 333,025 359,826 389,521 Bloomberg / Reuters RJHI AB / 1120.SE MKT Cap (mn) / Shares (mn) SAR91,065 / 1,625 Income Statement (mn) Net Interest Income 9,959 10,540 11,489 12,642 3M ADVT USD25.5 Non-Interest Income 3,787 3,778 4,019 4,319 Float 75% Total Banking Income 13,746 14,318 15,508 16,961 Foreign Ownership Limit 49% Operating Expense (4,653) (4,907) (5,230) (5,631) Total Provisions (1,958) (2,227) (2,760) (2,687) Major Shareholders Other Income/Expense - - - - Suleiman Abdulaziz Saleh Al Rajhi 20% Income before Taxes 7,135 7,184 7,518 8,643 General Organization for Social Ins., Saudi Arabia 10% Net Income 7,135 7,184 7,518 8,643 Abdullah Abdulaziz Saleh Al Rajhi 6% Source: Arabian Cement Company (ACC), EFG Hermes estimates

Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] 132 133 Share Price Performance Relative to TASI (Rebased) BAWAN COMPANY www.bawan.com.sa 30.0 Bawan Co (SAR) TASI 28.0 SAUDI ARABIA 26.0 24.0 Industrials 22.0 BUSINESS DESCIPTION 20.0 Bawan Holding Company is a major industrial group in Saudi Arabia that offers integrated consulting solutions 18.0 and engineering programmes to the construction sector in Saudi Arabia and regional markets. Bawan’s production 16.0 facilities are mostly located in Saudi Arabia (Riyadh, Jeddah, Dammam, Jubail, Yanbu, and Rabigh), with some QUESTIONS MENA presence (Kuwait, UAE and Syria). The company was established in 1980 through the merger of Abdullatif 14.0 & Mohammad Al Fozan CO. and Abdulkader Al Muhaidib & Sons General Trading Company. Bawan’s revenue is 12.0 generated from four main areas: metals (40% of revenue); wood (23%); electrical industry (29%); and concrete 10.0 (8% of revenue). Bawan operates through a number of subsidiaries, including: Bawan Metal Industries, Bawan 1. How has local demand affected Bawan’s operations, given the slowdown in the Saudi construction sector? Wood Industries, United Wood Products, United Transformers Electric Company (Utec), United Technology of ...... Electric Substations and Switchgears Company (USSG), Utec Syria, Bina Advanced Concrete Products, and Bina 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 Ready-mix Concrete Products. 21 Nov 15 2. What is the company’s dividends policy? ...... (SAR) INVESTMENT THESIS Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) Bawan follows an integrated strategy that aims primarily to maximise its position in local and regional markets, while EPS 2.80 2.94 1.47 1.99 3. Is the company planning on expanding further outside of Saudi Arabia? What are the possible attractive markets to enter? building stronger relations with its partners and customers through improving existing products and investing in new DPS 1.83 2.08 1.25 1.20 ...... and innovative enterprises. Bawan had made several investments in its subsidiaries: i) expansions in Bawan Metal BVPS 11.88 12.66 12.79 13.65 Industries plant in Jeddah, as well as the upgrading of production lines in Riyadh and Damam plants; ii) acquisition of Anmaa Ltd.; Bawan Wood owning 95% and the remaining 5% owned by United Wood Product Co., iii) establishing 4. How has the increase in energy prices affected the company’s operations? P/E (x) 8.2 7.8 15.6 11.5 United Technology of Electric Substations and Switchgears Co.; and vi) increasing capacities in Bina Precast and ...... Dividend Yield 8.0% 9.1% 5.4% 5.2% Bina Ready-mix. The company is also planning to undertake geographical expansion across targeted markets and P/BV (x) 1.9 1.8 1.8 1.7 invest in promising businesses that deliver high revenue with minimum risks. The company is also launching United 5. Does the company plan on adding further products to its product mix? Technology Electric Co. in Algeria, which is expected to commence commercial operations by 3Q17. FCF Yield -0.1% 7.0% 13.1% 8.1% ...... EV / EBITDA (x) 7.3 7.6 11.4 9.2

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Revenue Growth 17.4% 14.0% -13.9% -8.8% Financial Statements - December Year End (SAR mn) EBITDA Margin 11.4% 9.6% 7.5% 9.4% EBIT Margin 9.8% 7.9% 5.2% 7.0% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) Current Assets 1,262 1,404 1,256 1,455 Effective Tax Rate 5.5% 5.5% 7.3% 7.0% Net Fixed Assets 440 492 481 479 ROAE 23.1% 22.1% 10.6% 13.7% Intangibles & Others 175 191 190 188 ROAIC 18.6% 15.0% 8.2% 10.7% Total Assets 1,878 2,087 1,928 2,122 DPO 65.5% 70.8% 85.0% 60.2% Current Liabilities (Including Debt) 980 1,130 962 1,095 Long-Term Liabilities (Including Debt) 128 133 119 120 Net Debt (Cash) / Equity (x) 0.74 0.81 0.66 0.63 Total Net Worth 713 760 767 819 Net Debt (Cash) / EBITDA (x) 2.05 2.48 3.10 2.59 Minority Interest 56 65 79 87 Total Equity & Liabilities 1,878 2,087 1,928 2,122 Net Debt 570 666 556 574 Company and Stock Data Price (SAR) 23.00 on 17 August 2016 Income Statement Bloomberg / Reuters BAWAN AB / 1302.SE Revenue 2,448 2,791 2,404 2,350 MKT Cap (mn) / Shares (mn) SAR1,380 / 60 EBITDA 278 269 180 222 3M ADVT (mn) USD1.9 EBIT 239 220 124 165 Float 43% EBT 203 201 103 137 Foreign Ownership Limit 49% Net Income 168 176 88 120 Major Shareholders Cash Flow Statement Abdul Qadir & Sons C 26% CF from Operations 98 187 226 155 Al Fozan Holding Com 26% CF from Investments (94) (118) (44) (42) Maali Holding Co 5% CF from Finance & Non Operating CF 8 (60) (164) (68)

Source: BAWAN Co, EFG Hermes, and Bloomberg Ahmed Hazem Maher INSIGHTS INTO THE NEW REALITY [email protected] 134 135 Share Price Performance Relative to TASI (Rebased) BUDGET SAUDI FAIR VALUE SAR52.00 RATING BUY www.budgetsaudi.com Budget Saudi (SAR) TASI 45.0 SAUDI ARABIA 40.0 Consumer Discretionary 35.0 INVESTMENT THESIS United International Transportation Co. (Budget Saudi) operates the largest car rental company in Saudi Arabia’s fragmented market under franchise from global auto-rental brand ‘Budget’. Founded in 1978, Budget has grown 30.0 to operate c100 rental offices and a fleet of c30k cars (2015). Budget mainly offers: i) short-term (ST) car rentals for QUESTIONS up to one month (41% of 2015 revenue, 44% of fleet), ii) long-term (LT) car rentals (50% of revenue, 43% of fleet) 25.0 usually for 24-48 months entirely geared to corporate clients, iii) used car sales (c6-7kcars p.a., capital gains c76% of 2015 earnings), and iv) truck rentals to corporate clients (launched in 2012, c9% of top-line, 13% of fleet). The 20.0 company also added the “Payless” brand by Avis to its portfolio and will begin rolling out offices and ramping up its 1. Is the company seeing a change in demand trends for the short-term and long-term divisions on weaker consumption trends and/or competitive pressures? lower-price-point fleet in 2016 (initial contribution minor). Budget is a play on growing business and religious tourism ...... in KSA. It plans to grow LT rentals faster to benefit from corporate clients increasingly turning to outsourcing their 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 fleets. The company has the youngest fleet and prices at a premium versus local competition. It also has a best-in-class 21 Nov 15 2. How has the trucking division been faring, and how big a contribution do you see it having, in terms of revenue and earnings? profitability and low leverage for a car rental company. We are Buyers of Budget Saudi, as we expect solid growth visibility, driven by: i) fleet expansions (c8% p.a.), ii) cash margin improvement on scale benefits, high utilisation and ...... (SAR) larger contribution from the trucking business and LT car rentals (low operating leverage), and iv) limited impact from Valuation Statistics 2015a 2016e 2017e 2018e subsidy reforms and exposure to the public and oil and gas sectors. EPS 3.09 3.35 3.57 3.77 3. What is the rationale behind acquiring the Payless franchise? How big does management see this business eventually becoming? DPS 1.25 1.25 1.50 1.75 ...... BVPS 13.53 15.63 17.70 19.72 VALUATION & RISKS We value Budget Saudi using a discounted cash flow (DCF) methodology, yielding a fair value of SAR52.0/share. 4. What is the company’s exposure to the government, as well as oil & gas and contracting sectors? Is there a downside risk to receivables or renewal of long-term contracts? P/E (x) 10.03 9.28 8.69 8.23 Upside risks include: i) higher fleet additions, ii) expansion in vehicle yields on improved pricing, iii) accelerated ramp- ...... Dividend Yield 4.0% 4.0% 4.8% 5.6% up of the trucking business, iv) better cash margins on growing scale, etc., v) lower vehicle depreciation (largest cost item), vi) higher gain on sale of used cars (with launch of newly-owned showrooms), vii) value-accretive acquisitions P/BV (x) 2.3 2.0 1.8 1.6 and/or geographic expansions, viii) successful start of planned logistics operation (to be franchised from Barloworld, FCF Yield 4.6% 3.1% 2.5% 2.7% not included in our number), and ix) stronger-than-expected offtake of the Payless brand. Downside risks: i) rental EV / EBITDA (x) 3.4 3.0 2.8 2.6 yield dilution on increased competition, shift in mix to cheaper cars, ii) weaker tourism and demand by corporates (oil and gas c4% of revenue) and government entities (c2%), iii) adverse FX movements leading to higher-than-expected vehicle capex and depreciation, and iv) slowdown in the used car market. Key Performance Ratios 2015a 2016e 2017e 2018e Revenue Growth 15.6% 8.3% 8.0% 8.2% (SAR mn) Financial Statements - December Year End EBITDA Margin 82.3% 85.0% 84.9% 84.9% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 23.7% 24.1% 23.7% 23.2% Current Assets 178 219 266 314 Effective Tax Rate -3.0% -3.0% -3.0% -3.0% Net Fixed Assets 1,499 1,617 1,760 1,910 ROAE 24.5% 23.0% 21.4% 20.2% Intangibles & Others 26 24 21 17 ROAIC 14.4% 14.6% 14.1% 13.6% Total Assets 1,703 1,860 2,047 2,241 DPO 40.4% 37.3% 42.0% 46.4% Current Liabilities (Including Debt) 593 660 700 751 Long-Term Liabilities (Including Debt) 285 247 267 287 Net Debt (Cash) / Equity (x) 0.77 0.68 0.62 0.59 Total Net Worth 825 953 1,080 1,203 Net Debt (Cash) / EBITDA (x) 0.88 0.80 0.78 0.76 Minority Interest - - - - Total Equity & Liabilities 1,703 1,860 2,047 2,241 Net Debt 634 645 675 715 Company and Stock Data Price (SAR) 31.05 on 21 August 2016 Income Statement Revenue 876 948 1,025 1,109 Bloomberg / Reuters BUDGET AB / 4260.SE (mn) (mn) EBITDA 721 806 870 941 MKT Cap / Shares SAR1,894 / 61 EBIT 208 229 243 257 3M ADVT (mn) USD1.5 EBT 195 210 225 237 Float 66% Net Income 189 204 218 230 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 610 612 666 723 Zahid Group Holding 27% CF from Investments (507) (537) (603) (655) Mohammed Abdulilah Mahmoud Zahid 8% CF from Finance & Non Operating CF (101) (67) (53) (59)

Source: Budget Saudi, EFG Hermes estimates

Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 136 137 Share Price Performance Relative to TASI (Rebased) BUPA ARABIA FAIR VALUE EGP155.0 RATING BUY www.bupa.com.sa 150.0 Bupa Arabia (SAR) TASI 140.0 SAUDI ARABIA 130.0 120.0 Financials INVESTMENT THESIS 110.0 Bupa Arabia, a mono-line insurer, is the largest health insurance company in Saudi Arabia, with a market share 100.0 of 43.6% of sector health GWP as of 1H16. Listed in 2008, the company started its operations in Saudi Arabia in 1997. The company’s market share has grown strongly over the past three years and has given the company an 90.0 QUESTIONS unmatched scale in the sector. The company has demonstrated a track record of consistent risk management, with 80.0 loss ratios remaining below 81% in its seven years of operations as a listed entity. The strong build-up in the scale of the company’s GWP size has also allowed to improve its expense ratio, which is one of the lowest in the sector. We 70.0 see more room for market share gains for Bupa as it leverages off its strong product offering and quality of service. 1. The first half of the year has seen a sharp slowdown in premium growth compared to last year. What is the key driver for that? Investment returns, which have been one of the lowest in the sector, have significant room for improvement, as ...... higher solvency ratio allows the company to focus on better asset allocation. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Bupa has been able to maintain combined ratios at very competitive level. How sustainable are these levels? Valuation Statistics (SAR) 2015a 2016e 2017e 2018e VALUATION & RISKS ...... We have a Buy rating on Bupa with a fair value of SAR155.0/share. We value Bupa based on EVA model, using EPS 7.73 8.41 9.01 10.47 discount rate of 10.5% and terminal growth of 5.0%. We see significant room for long-term growth as insurance DPS 2.00 3.07 4.24 5.46 3. Do you see any pressure on premium pricing? penetration levels in the country are low. Strong solvency ratios, coupled with a moderation in GWP growth, reduces BVPS 19.61 26.02 31.96 38.19 ...... capital intensity, opening up room for increase in dividend pay-outs. Key risks to our Buy rating on Bupa include: i) stronger-than-expected claims inflation denting loss ratios; ii) increased competition from smaller players leading to P/E (x) 16.5 15.1 14.1 12.2 market share loss; and iii) lower-than-expected investment returns. 4. Investment income has been much stronger this year compared to last year. Has there been any change in investment strategy? How much is your investment book’s Dividend Yield 1.6% 2.4% 3.3% 4.3% exposure to equities and is it all domestic? P/BV (x) 6.5 4.9 4.0 3.3 ......

ROAE 49.1% 36.9% 31.1% 29.8% ROAA 11.4% 9.9% 8.8% 8.7%

Key Performance Ratios 2015a 2016e 2017e 2018e Financial Statements - December Year End (SAR mn) Gross written premium growth 27.7% 11.0% 13.0% 13.0% Net earned premium growth 46.7% 14.9% 11.9% 12.9% Balance Sheet 2015a 2016e 2017e 2018e Total cash and investments 4,971 6,223 7,461 8,852 Insurance profit growth 116.9% 6.8% 5.7% 15.3% Premium receivables 749 758 881 996 Net attributable income growth 102.3% 8.8% 7.2% 16.1% Other Assets 433 492 527 565 Retention ratio 99.4% 99.3% 99.2% 99.2% Total Assets 6,153 7,473 8,869 10,413 Loss ratio 77.32% 78.91% 79.91% 80.00% Outstanding claims 1,054 1,337 1,658 2,020 Expense ratio 11.66% 11.96% 12.20% 12.08% Unearned premium 2,891 3,254 3,706 4,222 Combined ratio 89.0% 90.9% 92.1% 92.1% Other liabilities 542 703 850 1,018 Total Liabilities 4,487 5,294 6,215 7,260 GWP to Equity 4.4% 3.7% 3.5% 3.3% Shareholders Equity 1,667 2,179 2,655 3,153 GWP to Technical Reserves 1.9% 1.8% 1.7% 1.7% Total Shareholders Equity & Liabilities 6,153 7,473 8,869 10,413 Investment Yield 0.4% 1.9% 2.6% 2.6% Investment income /Insurance Profit 2.4% 12.9% 20.4% 21.8% Income Statement Gross written premium 7,328 8,134 9,192 10,386 Company and Stock Data Net premium written 7,286 8,077 9,118 10,303 Price (SAR) 125.25 on 21 August 2016 Net earned premium 6,739 7,746 8,670 9,793 Net claims incurred (5,211) (6,112) (6,928) (7,834) Bloomberg / Reuters BUPA AB / 8210.SE Underwriting costs (786) (926) (1,058) (1,183) MKT Cap (mn) / Shares (mn) SAR10,020 / 80 Underwriting profit 743 708 684 775 3M ADVT (mn) USD4 Investment income 19 105 175 216 Float 48% Insurance profit 761 813 860 991 Foreign Ownership Limit 49% Other expenses (43) (35) (26) (26) Income before distributions 718 778 834 965 Major Shareholders Distribution to policy holders (73) (76) (81) (92) Bupa Investment Overseas Limited 26% Taxes & zakat (27) (29) (32) (35) ASAS Healthcare Company 8% Net Attributable Income 619 673 721 837 Nazer Group Holdings 9% Source: Bupa Arabia, EFG Hermes estimates Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] 138 139 Share Price Performance Relative to TASI (Rebased) DALLAH HEALTHCARE FAIR VALUE SAR103.00 RATING BUY www.dallahhealth.com 100.0 Dallah Healthcare (SAR) TASI SAUDI ARABIA 90.0

80.0 Healthcare INVESTMENT THESIS 70.0 Dallah operates one of the largest private hospitals, in terms of beds capacity (448 beds in 2015) in Riyadh. Dallah is undergoing an aggressive expansion plans, Dallah has added recently 65 new clinics and is in the process of 60.0 developing 250 beds and 160 outpatients clinics surrounding its existing hospital expected to start operations in QUESTIONS 1H2018. Also, the company will build a new hospital in the west of Riyadh, with a capacity of 400 inpatient beds 50.0 and 200 outpatient clinics that is expected to operate gradually starting 2018. Also Dallah has 30% investment in Dr. AlFagih company that expects to build a hospital by late 2017/early 2018 (308 bes and 147 clinics) plus 40.0 management fees from the new hospital. 1. What is the current progress of your expansions? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 VALUATION & RISKS 21 Nov 15 2. What is the capex guidance for the next three years? We value Dallah using a discounted cash flow (DCF) model, yielding a fair value (FV) of SAR103 per share. We apply a WACC of 8.9% based on a cost-of-equity of 10.5% (a risk-free rate of 4.5% and an equity risk premium of ...... (SAR) 6.0%) and an after-tax cost of debt of 3.9%. We assume a terminal growth rate of 4%. The main downside risks Valuation Statistics 2015a 2016e 2017e 2018e are: i) postponement of the new hospital launch would have a negative impact on our forecasts, ii) risk on dividend EPS 2.80 3.73 3.91 4.37 3. Will you be exposed to any of the ministry of health’s (MoH) pricing or guidance in dealing with private hospitals? distribution in the coming few years, given high capex spending on expansions, and iii) difficulties in hiring skilled DPS 1.50 2.00 2.00 2.25 ...... labour (40% of costs). BVPS 23.61 25.34 27.26 29.38 4. What is your current government exposure? P/E (x) 29.95 22.45 21.41 19.17 ...... Dividend Yield 1.8% 2.4% 2.4% 2.7% P/BV (x) 3.5 3.3 3.1 2.9 5. What is your current Saudisation level? FCF Yield -0.1% -4.4% -5.3% -5.4% ...... EV / EBITDA (x) 23.5 18.3 17.2 14.8

6. Are you facing troubles issuing and renewing visas for your expats? Key Forecast Drivers 2015a 2016e 2017e 2018e ...... Revenue Growth 14.8% 15.5% 12.3% 30.6% (SAR mn) Financial Statements - December Year End EBITDA Margin 23.0% 25.6% 24.1% 21.5% 7. What is your view on the healthcare plan outlined in Vision 2030, in terms of privatisation etc…? Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 17.3% 20.5% 19.0% 16.8% ...... Current Assets 550 545 607 775 Effective Tax Rate -5.5% -6.4% -6.4% -6.4% Net Fixed Assets 1,145 1,571 2,017 2,427 ROAE 12.4% 15.2% 14.9% 15.4% Intangibles & Others 307 305 305 305 ROAIC 11.4% 12.1% 9.9% 9.4% Total Assets 2,002 2,421 2,929 3,507 DPO 53.6% 53.6% 51.1% 51.5% Current Liabilities (Including Debt) 274 435 765 1,163 Long-Term Liabilities (Including Debt) 335 490 556 610 Net Debt (Cash) / Equity (x) 0.12 0.37 0.58 0.76 Total Net Worth 1,393 1,495 1,608 1,733 Net Debt (Cash) / EBITDA (x) 0.71 1.92 3.00 3.67 Minority Interest - - - - Total Equity & Liabilities 2,002 2,421 2,929 3,507 Net Debt 162 559 926 1,318 Company and Stock Data Price (SAR) 83.78 on 21 August 2016 Income Statement Revenue 985 1,139 1,279 1,670 Bloomberg / Reuters DALLAH AB / 4004.SE (mn) (mn) EBITDA 227 291 309 359 MKT Cap / Shares SAR4,943 / 59 EBIT 170 234 243 281 3M ADVT (mn) USD1.4 EBT 175 235 247 275 Float 30% Net Income 165 220 231 258 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 206 204 235 227 Dallah AlBaraka Holding Company 54.6% CF from Investments (327) (634) (577) (319) Mohammed Rashid Al-Faqeeh 5.24% CF from Finance & Non Operating CF 150 396 341 92

Source: Dallah Healthcare, EFG Hermes estimates

Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] 140 141 Share Price Performance Relative to TASI (Rebased) DAR AL ARKAN www.alarkan.com 7.5 Dar Al Arkan (SAR) TASI

7.0 SAUDI ARABIA

6.5 Real Estate & Hospitality 6.0 BUSINESS DESCIPTION Dar Al Arkan is one of the largest residential real estate developers in Saudi Arabia mainly targeting the middle- 5.5 income segment. The company develops residential units for sale and commercial properties to be kept in its lease 5.0 portfolio. The majority of the company’s revenue is generated from the sale of raw land of its existing residential QUESTIONS projects that carry high profit margins. Dar Al Arkan has three main integrated residential and commerical 4.5 developments, namely: i) Sham Ar Riyadh which is spread over 2.4mn sqm, offering units for sale (325 units) and rent (1,160 residential units and 3.2mn sqm of non-residential space); ii) Juman spread over 8.2mn sqm in Daman, 4.0 for which the company is the master developer; and iii) Sham Al Arous; a 1mn sqm project in Jeddah, offering 1. What are the latest updates on the operational environment and the tools management is taking amidst the increasing market challenges? 733,000 sqm of residential area to be sold and 3,300 units for rental; in addition to 190,000 sqm of commerical ...... built-up area (BuA) for lease. Dar Al Arkan’s lease portfolio includes: i) Al Qasr, offering c2,500 for rental, 56,000 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 sqm of GLA in retail space (in street shops), and 20,000 sqm of GLA in office building; ii) Al-Qasr mall, an 88% 21 Nov 15 2. What is management’s view on the impact of White Land Tax on the market and company operations? leased mall with GLA of 76,000; iii) Azizia Tower in Mecca, with a leasable area of 40,746 sqm (fully lease to KAMC); iv) Al Tilal VIllas in Medina (36% leased); and v) Al Masif Compound (Riyadh): 100% leased to NESMA...... Valuation Statistics (SAR) 2013a 2014a 2015a 1H16a (TTM) EPS 0.63 0.53 0.33 0.23 3. What are the latest updates on the company’s development portfolio, in light of the strategic decision to expand the segment? INVESTMENT THESIS DPS 0.00 0.00 0.00 0.00 ...... Dar Al Arkan is a long-term play on the growing real estate market in Saudi Arabia, driven by the Kingdom’s BVPS 15.73 16.27 16.60 16.69 favourable demographics and the under-supplied property market. The company currently faces a number of headwinds: i) high volatility in oil prices is having a negative impact on the government’s appetite to spend on 4. What are the latest developments on the investment portfolio? infrastructure and housing projects, which will, in turn, result in a slowdown in the property market; ii) regulatory P/E (x) 9.4 11.1 17.9 26.2 ...... and legislative changes, which may add pressure on the company’s profitability, including the recently-announced Dividend Yield 0.0% 0.0% 0.0% 0.0% White Land Tax. P/BV (x) 0.4 0.4 0.4 0.4 FCF Yield 15.7% -20.0% -0.7% 3.8% EV / EBITDA (x) 10.5 9.7 25.7 37.5

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Land Bank (sqm mn) 35.0

Financial Statements - December Year End (SAR mn) Revenue Growth -17.5% 4.7% -28.0% -31.1% EBITDA Margin 35.8% 36.8% 19.3% 16.3% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 22.5% 17.7% 14.4% 11.1% Projects under Development 15,581 16,312 14,633 15,156 Investment Properties 2,695 3,567 3,501 3,462 Effective Tax Rate -2.5% -2.5% -2.5% -7.0% Intangibles & Others 5,921 6,504 7,171 6,580 ROAE 4.1% 3.3% 2.0% 1.3% Total Assets 24,197 26,383 25,305 25,198 ROAIC 4.5% 4.3% 1.3% 0.8% Current Liabilities (Including Debt) 2,027 3,337 2,596 2,500 DPO 0.0% 0.0% 0.0% 0.0% Long-Term Liabilities (Including Debt) 5,177 5,477 4,782 4,670 Total Net Worth 16,993 17,569 17,927 18,028 Net Debt (Cash) / Equity (x) 0.21 0.37 0.30 0.26 Minority Interest - - - - Net Debt (Cash) / EBITDA (x) 3.45 5.72 12.38 15.76 Total Equity & Liabilities 24,197 26,383 25,305 25,198 Net Debt 3,624 6,472 5,292 4,630 Company and Stock Data Price (SAR) 5.81 on 21 August 2016 Income Statement Bloomberg / Reuters ALARKAN AB / 4300.SE Revenue 2,934 3,072 2,211 1,802 MKT Cap (mn) / Shares (mn) SAR6,275 / 1,080 EBITDA 1,052 1,131 427 294 3M ADVT (mn) USD65.7 EBIT 660 543 319 200 Float 91% EBT 699 590 368 248 Foreign Ownership Limit 49% Net Income 681 575 359 242 Major Shareholders Cash Flow Statement El-Shalash Khalid Ab 6% CF from Operations 1,005 333 491 1,089 Al Shelash Abdul Lat 1% CF from Investments (751) (1,966) (449) (56) Al Hathloul Hathloul 1% CF from Finance & Non Operating CF 1,490 489 (176) (396)

Source: Dar Al-Arkan, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 142 143 Share Price Performance Relative to TASI (Rebased) EMAAR THE ECONOMIC CITY www.emaar.com Emaar Economic City (SAR) TASI 16.0 SAUDI ARABIA 14.0 Real Estate & Hospitality 12.0 BUSINESS DESCIPTION Established in 2006, Emaar Economic City leads the master-planning and development of King Abdulla Economic 10.0 City (KAEC) on c170mn sqm off the Rea Sea coast, North of Jeddah. The city being divided into a number of major components: i) a residential area; ii) an industrial zone; and iii) a central business district is expected to attract a QUESTIONS total population of 2mn inhabitant by 2035. The mega-project aims to create employment opportunities and attract 8.0 foreign investment. The Saudi Arabian General Investment Authority (SAGIA) is the main facilitator of the project. The company is an affiliate of Dubai-based Emaar Properties (30% ownership) 6.0 1. What is the status of ongoing work at the KAEC project? What is the percentage of completion to date? According to your estimates, what is the size of population expected to live in KAEC? INVESTMENT THESIS ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 KAEC is a greenfield city development project, with an objective to help with Saudi Arabia’s Acute housing demand 21 Nov 15 and support economic diversification. KAEC’s stategic location on the Red Sea puts it close to international maritime 2. Could you please elaborate on the status of the project’s residential component? What is the value of units sold until now? And when do you expect to start delivering routes and give access to key cities within the Kingdom. It is comprised of the Coastal Communities, The Industrial Valuation Statistics (SAR) 2013a 2014a 2015a 1H16a (TTM) Valley, KAP, and The Hejaz District. The city drivers are: the port, the industrial valley, Haramain station, the land bridge these units? What is the inventory of units in the launched phases? What is your outlook for prices in KAEC? When do you expect to launch new phases? EPS 0.32 0.45 0.36 0.26 and the Babson Collage...... DPS 0.00 0.00 0.00 N/A BVPS 9.22 9.67 10.02 10.08 3. What is the management’s biggest challenge/concern? P/E (x) 43.5 31.2 38.8 53.7 ...... Dividend Yield 0.0% 0.0% 0.0% 0.0% P/BV (x) 1.5 1.4 1.4 1.4 FCF Yield -4.0% 4.9% -10.7% -12.2% EV / EBITDA (x) 37.0 40.2 62.6 138.7

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Land Bank (mn sqm) 170 Financial Statements - December Year End (SAR mn) Revenue Growth 45.2% 25.6% 0.9% 7.8% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBITDA Margin 59.5% 42.9% 28.6% 13.1% Investment Properties 4,285 4,365 5,217 5,249 EBIT Margin 56.3% 40.0% 25.4% 1.0% Property and Equipment 4,136 5,012 5,495 6,188 Effective Tax Rate -10.2% -6.6% -17.3% -20.2% Intangibles & Others 5,925 6,829 7,694 8,679 ROAE 3.5% 4.7% 3.6% 2.5% Total Assets 14,346 16,206 18,038 18,287 Current Liabilities (Including Debt) 685 1,638 890 1,002 ROAIC 3.4% 3.3% 1.8% 0.1% Long-Term Liabilities (Including Debt) 5,825 6,353 8,631 8,720 DPO 0.0% 0.0% 0.0% 0.0% Total Net Worth 7,836 8,216 8,519 8,567 Net Debt (Cash) / Equity (x) 0.32 0.50 0.61 0.76 Minority Interest 0 (0) (2) (2) Net Debt (Cash) / EBITDA (x) 5.10 9.03 17.75 49.03 Total Equity & Liabilities 14,347 16,206 18,038 18,287 Net Debt 2,532 4,118 5,201 6,479

Company and Stock Data Income Statement Price (SAR) 13.95 on 21 August 2016 Revenue 833 1,064 1,023 1,008 EBITDA 496 456 293 132 Bloomberg / Reuters EMAAR AB / 4220.SE (mn) (mn) EBIT 469 426 260 10 MKT Cap / Shares SAR11,858 / 850 EBT 386 371 272 240 3M ADVT (mn) USD7.3 Net Income 273 380 303 215 Float 56% Foreign Ownership Limit 49% Cash Flow Statement CF from Operations 40 1,487 28 (1) Major Shareholders CF from Investments (538) (2,963) (1,492) (2,489) Emaar Properties 30% CF from Finance & Non Operating CF 27 716 1,350 612

Source: Emaar Economic City, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 144 145 Share Price Performance Relative to TASI (Rebased) MAADEN FAIR VALUE SAR30.00 RATING SELL www.maaden.com.sa 45.0 Maaden (SAR) TASI SAUDI ARABIA 40.0

Materials 35.0 INVESTMENT THESIS The Saudi Arabian Mining Company (Maaden) was founded in 1997 by the Saudi government in order to exploit 30.0 Saudi Arabia’s mineral resources. It operates a fully integrated business through three main divisions: phosphate, aluminium and gold of which we expect phosphate to be the largest cash generator. Maaden’s full vertical integration QUESTIONS makes the company one of the lowest cost global phosphate fertiliser and aluminium producers. Maaden enjoys 25.0 a grace period at its operations whereby it will continue to enjoy gas prices at USD0.75/mmBTU until 2017 at its phosphate operations, 2020 for aluminium and 2023 for its second phosphate expansion, protecting the company 20.0 from sudden feedstock price hikes and providing some visibility on future costs. We expect another challenging year 1. What is the status quo of the new DAP expansion? How quickly do you expect to ramp up to full production? Do you expect that the start-up of the plant is likely to in 2016 on the back of the significant price pressure seen in phosphate and aluminium markets. We have a Sell rating pressure global prices? on Maaden...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15

VALUATION & RISKS 2. Given the challenging commodity prices driven by the Chinese exports of DAP and aluminum, how does the company plan to mitigate this? Are there any further actions (SAR) We value Maaden using a sum of the parts valuation which yields a FV of SAR30.0/share with the phosphate division Valuation Statistics 2015a 2016e 2017e 2018e that could help optimise costs and increase productivity? Is there any way to quantify this? What is your outlook on DAP and aluminium prices? representing 52%, aluminium 40% and gold 8% of our FV. We value the phosphate and aluminium division via a EPS 0.52 0.63 1.03 1.66 ...... discounted cashflow methodology, inline with the commodity stocks within our coverage. For the gold division, we DPS 0.00 0.00 0.00 0.50 use a combination of NPV of expected cash flow from gold reserves and EV/reserve & EV/resource metrics. Note that BVPS 23.36 23.99 25.02 25.78 3. Following the recent changes to feedstock prices in Saudi Arabia, has there been any change to the impact you announced on Tadawul? Has the government conveyed our valuation is highly biased to our terminal assumptions (c80% of our valuation) as we expect the significant capex in the coming years as well as the weak pricing environment will weigh on medium term cashflow. The main upside to you if it is planning to increase feedstock costs further? P/E (x) 67.33 55.71 33.87 20.96 to our forecasts would be the announcement of new projects, as we only account for projects currently in the pipeline...... Dividend Yield 0.0% 0.0% 0.0% 1.4% Other risks include higher-than-expected/ lower-than-expected feedstock costs (we assume feedstock prices would P/BV (x) 1.5 1.5 1.4 1.4 eventually rise to USD3/mmBtu) and/ or product prices. 4. The Saudi government will be focusing on the mining sector in its 2030 vision. How is Maaden taking an active role in making use of the government’s plan? Have there FCF Yield -19.6% -2.5% 4.4% 4.1% been any developments on this front? Could the company add any new commodities to its portfolio? Do you expect any announcements on this front soon, or do you EV / EBITDA (x) 30.9 27.6 19.4 14.4 expect this would take time, and we are unlikely to hear anything until next year? ...... Key Performance Ratios 2015a 2016e 2017e 2018e Revenue Growth 1.5% -8.1% 27.7% 40.9% 5. An increase in the SAIBOR is inflating the company’s finance cost. How is the company planning on mitigating the effect of higher-debt costs? (SAR mn) Financial Statements - December Year End EBITDA Margin 32.1% 40.8% 46.3% 44.6% ...... Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 11.9% 15.6% 20.1% 20.2% Current Assets 10,418 9,078 10,135 12,999 Effective Tax Rate 5.4% 6.4% 5.2% 5.1% Net Fixed Assets 36,682 49,585 62,959 81,510 ROAE 2.2% 2.6% 4.2% 6.5% Intangibles & Others 42,277 37,833 24,174 2,099 ROAIC 1.8% 1.9% 2.9% 4.2% Total Assets 89,378 96,496 97,268 96,608 DPO 0.0% 0.0% 0.0% 30.1% Current Liabilities (Including Debt) 8,574 7,533 8,981 10,227 Long-Term Liabilities (Including Debt) 45,409 52,638 50,484 47,335 Net Debt (Cash) / Equity (x) 1.14 1.32 1.27 1.13 Total Net Worth 27,298 28,030 29,233 30,127 Net Debt (Cash) / EBITDA (x) 11.45 11.66 8.05 5.48 Minority Interest 8,097 8,294 8,571 8,918 Total Equity & Liabilities 89,378 96,496 97,268 96,608 Net Debt 40,231 47,910 47,911 44,211 Company and Stock Data Price (SAR) 34.87 on 21 August 2016 Income Statement Revenue 10,956 10,071 12,864 18,122 Bloomberg / Reuters MAADEN AB / 1211.SE (mn) (mn) EBITDA 3,514 4,110 5,952 8,074 MKT Cap / Shares SAR40,745 / 1,168 EBIT 1,305 1,574 2,582 3,655 3M ADVT (mn) USD20.7 EBT 854 992 1,717 2,781 Float 35% Net Income 605 731 1,203 1,944 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 4,734 2,979 5,697 6,867 Public Investment Fund 50% CF from Investments (13,850) (11,025) (3,080) (845) General Organization for Social Insurance 8% CF from Finance & Non Operating CF 1,826 7,986 (2,353) (5,317) Public Pension Agency 7%

Source: Maaden, EFG Hermes estimates

Yousef Husseini INSIGHTS INTO THE NEW REALITY [email protected] 146 147 Share Price Performance Relative to TASI (Rebased) NATIONAL AGRICULTURE DEVELOPMENT (NADEC) FAIR VALUE SAR22.50 RATING NEUTRAL www.nadec.com.sa Nadec (SAR) TASI 31.0 29.0 SAUDI ARABIA 27.0 25.0 Consumer Staples INVESTMENT THESIS 23.0 National Agriculture Development Company (Nadec) is one of Saudi Arabia’s oldest agriculture companies and 21.0 key integrated dairy players. Dairy and food constituted 87% of revenue (2015), with the balance in agricultural 19.0 output such as crops (wheat and corn), and fruits and vegetables. Saudi Arabia is Nadec’s main market (c84% of QUESTIONS 17.0 revenue). The company’s strategy aims to focus on its dairy and food division, while reducing reliance on its asset- heavy agriculture division (which increases earnings volatility), in line with the Saudi government’s strategy to reduce 15.0 water-intensive crop cultivation. We have a Neutral rating on Nadec, as we expect sizeable cost pressures from the 13.0 recent hike in electricity, petrol and diesel prices, especially given the company’s weak profitability profile. Also, impact 1. What is the company’s action plan to meet the government’s requirement for feed to be imported by 2019? How much of feed needs are currently imported, and what is from the planned ban on local fodder cultivation by 2019 will likely be significant, as the company only imports c30% the expected cost impact? of its feed needs...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15

VALUATION & RISKS 2. How is the company mitigating cost pressures from higher utility and transportation costs post government subsidy reforms? (SAR) We value Nadec using a discounted cash flow (DCF) methodology, yielding a fair value of SAR22.50/share. We value Valuation Statistics 2015a 2016e 2017e 2018e ...... Nadec at a discount to dairy peers to reflect its sub-par profitability and returns. Upside risks include: i) sustained EPS 1.74 1.51 1.36 1.18 improvement in return and profitability metrics, ii) continued strength in dairy and food division’s revenue growth DPS 0.45 0.45 0.45 0.45 3. What is the main reason behind muted growth in the main dairy & food segment in 1H16? and margins, iii) positive take-off at Nadec’s Sudan and Egypt agricultural projects (not included in our valuation), BVPS 16.11 17.17 18.07 18.80 ...... iv) a sharp decline in raw material prices leading to better-than-expected margins, v) strong market share gains, and vi) better ability to mitigate cost pressures via industrial and logistical efficiencies. Downside risks include: i) P/E (x) 11.53 13.28 14.71 16.98 unpredictability of the agriculture segment’s revenue and margins, ii) regulated pricing environment that constrains 4. What is the target contribution of the agriculture segment to revenue? Dividend Yield 2.3% 2.3% 2.3% 2.3% ability to mitigate cost pressures, iii) changes to subsidies on imported animal feed (c55% of 2015 bottom-line) and/ ...... or imposing fees on groundwater usage, iv) sustainably high leverage on higher-than-expected investment spending, P/BV (x) 1.2 1.2 1.1 1.1 v) continued high SG&A costs, vi) environmental and biological risks, and vii) competition risk. FCF Yield -6.4% -2.4% 0.1% 2.3% 5. Is the company planning to venture into new geographies? How are the farming operations in Sudan and plans for Egypt progressing? EV / EBITDA (x) 8.3 8.0 7.8 7.6 ......

Key Performance Ratios 2015a 2016e 2017e 2018e Revenue Growth 13.6% 4.5% 8.0% 8.3% (SAR mn) Financial Statements - December Year End EBITDA Margin 19.6% 19.3% 18.5% 17.5% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 8.3% 7.7% 6.8% 5.9% Current Assets 996 1,083 1,152 1,236 Effective Tax Rate -5.2% -3.5% -3.5% -3.5% Net Fixed Assets 2,794 2,952 3,054 3,101 ROAE 11.4% 9.1% 7.7% 6.4% Intangibles & Others 36 47 58 69 ROAIC 6.4% 5.8% 5.3% 4.8% Total Assets 3,825 4,082 4,265 4,406 DPO 26.1% 30.1% 33.4% 38.5% Current Liabilities (Including Debt) 1,054 1,537 1,958 2,352 Long-Term Liabilities (Including Debt) 1,406 1,091 776 461 Net Debt (Cash) / Equity (x) 1.25 1.24 1.21 1.18 Total Net Worth 1,365 1,454 1,531 1,592 Net Debt (Cash) / EBITDA (x) 3.72 3.79 3.78 3.73 Minority Interest Total Equity & Liabilities 3,825 4,082 4,265 4,406 Net Debt 1,711 1,803 1,858 1,876 Company and Stock Data Price (SAR) 20.05 on 21 August 2016 Income Statement Revenue 2,354 2,459 2,656 2,876 Bloomberg / Reuters NADEC AB / 6010.SE (mn) (mn) EBITDA 461 476 492 503 MKT Cap / Shares SAR1,698 / 85 EBIT 195 189 181 169 3M ADVT (mn) USD4.4 EBT 149 133 120 104 Float 65% Net Income 141 128 115 100 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 515 449 464 474 Saudi Arabian General Investment Fund (GIF) 20% CF from Investments (578) (434) (402) (369) Abdullah AbdelAziz Saleh Al Rajhi 8% CF from Finance & Non Operating CF 88 8 (63) (97) Sleiman AbdelAziz Saleh Al Rajhi 7%

Source: Nadec, EFG Hermes estimates

Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 148 149 Share Price Performance Relative to TASI (Rebased) RED SEA HOUSING SERVICES www.redseahousing.com Red Sea Housing Services (SAR) TASI 29.0

27.0 SAUDI ARABIA

25.0 Real Estate & Hospitality BUSINESS DESCIPTION 23.0 The company operates three main divisions: i) Industrial Housing division: provides housing facilities and related 21.0 infrastructure in remote areas for the government and for local and international clients, across the mining, oil & gas, manufacturing, and construction sector; ii) Building Materials division (started in 2013): focused on production and 19.0 QUESTIONS distribution of paint and coating products, including architectural paint, and industrial and marine coating; and iii) 17.0 Affordable Housing division (started in 2015): focused on developing and delivering urban communities at affordable rates, based on a strategic alliance with Brazil-based Direcional Engenharia. The company only owns an investment 15.0 portfolio in Saudi Arabia and the UAE, as well as across other countries, including Ghada, Algeria and Oman. 1. Could you please give more light on the company’s 2020 growth strategy? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 INVESTMENT THESIS 21 Nov 15 2. What tools is management taking to weather the ongoing market challenges? The challenging operating environment in the Kingdom (72% of 2015 revenue) and the UAE (15%) has had its toll on the company’s performance, with revenue and margins pressured, pushing ROEs into the single-digit territory. This ...... (SAR) was on the back of weaker revenue from the housing and manufacturing segments. That said, the company has been Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) able to grow revenue from its rental portfolio, which helped maintain a high payout ratio (above c40%). EPS 2.55 2.61 1.27 1.54 3. Could you please provide more details on the company’s investment portfolio in and outside of Saudi Arabia, and the strategy going forward for the segment? DPS 1.00 1.00 0.75 0.75 ...... BVPS 14.91 16.18 16.15 16.38

P/E (x) 9.8 9.6 19.6 16.2 Dividend Yield 4.0% 4.0% 3.0% 3.0% P/BV (x) 1.7 1.5 1.5 1.5 FCF Yield 18.8% -4.9% -3.6% -3.0% EV / EBITDA (x) 7.1 6.0 8.8 8.7

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Revenue Growth 12.4% 13.5% -7.0% -5.3% Financial Statements - December Year End (SAR mn) EBITDA Margin 25.2% 26.2% 19.3% 19.7% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 16.6% 15.0% 8.5% 9.1% Investment Portfolio 486 571 611 553 Effective Tax Rate -9.8% -7.3% -10.7% -13.0% Net Fixed Assets 205 234 223 227 Intangibles & Others 741 713 752 828 ROAE 18.0% 17.0% 7.9% 9.5% Total Assets 1,432 1,518 1,586 1,607 ROAIC 15.6% 14.4% 6.6% 6.9% Current Liabilities (Including Debt) 396 416 401 415 DPO 39.3% 38.3% 59.1% 48.9% Long-Term Liabilities (Including Debt) 153 143 228 221 Net Debt (Cash) / Equity (x) 0.08 0.22 0.34 0.28 Total Net Worth 895 971 969 983 Minority Interest (12) (13) (13) (12) Net Debt (Cash) / EBITDA (x) 0.28 0.72 1.63 1.33 Total Equity & Liabilities 1,432 1,518 1,585 1,607 Net Debt 70 210 323 269 Company and Stock Data Price (SAR) 24.94 on 21 August 2016 Income Statement Bloomberg / Reuters REDSEA AB / 4230.SE Revenue 974 1,105 1,028 1,024 MKT Cap (mn) / Shares (mn) SAR1,496 / 60 EBITDA 246 290 198 202 3M ADVT (mn) USD0.7 EBIT 162 166 87 93 Float 27% EBT 168 167 85 87 Foreign Ownership Limit 49% Net Income 153 157 76 93 Major Shareholders Cash Flow Statement Al Dabagh Holding Co 51% CF from Operations 281 168 92 149 Supreme Foods 5% CF from Investments (176) (235) (145) (110) National Scientific Company 5% CF from Finance & Non Operating CF (25) (40) 34 (15)

Source: Red Sea Housing Services, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 150 151 Share Price Performance Relative to TASI (Rebased) SAUDI CERAMICS FAIR VALUE SAR48.00 RATING BUY www.saudiceramics.com Saudi Ceramics (SAR) TASI 70.0 SAUDI ARABIA 65.0 60.0 Industrials 55.0 INVESTMENT THESIS Saudi Ceramics is the largest producer of ceramic tiles (64 million sqm, c20%+ market share) and sanitary 50.0 ware (35%) in Saudi Arabia. It also has 40% market share of the water heater business in KSA. Saudi Arabia 45.0 is the world’s second largest importer of ceramic tiles. SCC is a volume-driven play on population growth and QUESTIONS infrastructure spending, by virtue of its local distribution network and access to government and corporate clients, 40.0 with a relatively favourable cost advantage. SCC is expect to start the fist phase of its new sanitary ware plant in 35.0 4Q16 and has started the commercial production at its water heater second plant with a capacity of 600k tonnes 30.0 per annum and expects to reach full production capacity by end of 2Q16. 1. What is the current progress of your expansions? ......

VALUATION & RISKS 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Do you think demand can absorb your recent expansions? We value SCC based on a discounted cash flow (DCF) model. We use an equity risk premium of 8.0% and a perpetual growth rate of 2.70%. The main challenge for the company in 2016 is the reduced availability of new ...... (SAR) projects due to the expected prolonged slowdown in construction segment and margin contraction on hike in Valuation Statistics 2015a 2016e 2017e 2018e energy cost post government announcement on easing in fuel subsidy in late 2015. Rising competition from the EPS 5.68 3.45 3.95 4.41 3. What is the outlook for demand for the remainder of the year and next year? GCC and dumping from Chinese exporters might be other risks. DPS 2.00 1.00 1.50 1.75 ...... BVPS 37.96 40.34 42.77 45.40 4. What is your current Saudisation level? P/E (x) 5.82 9.59 8.37 7.49 ...... Dividend Yield 6.0% 3.0% 4.5% 5.3% P/BV (x) 0.9 0.8 0.8 0.7 FCF Yield 8.6% 9.0% 9.5% 9.0% EV / EBITDA (x) 4.9 6.1 5.7 5.2

Key Performance Ratios 2015a 2016e 2017e 2018e Revenue Growth 2.3% -14.5% 9.3% 10.1% (SAR mn) Financial Statements - December Year End EBITDA Margin 28.1% 26.2% 25.9% 25.6% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 18.1% 13.9% 13.9% 13.9% Current Assets 1,271 1,365 1,212 1,339 Effective Tax Rate -5.3% -10.4% -7.0% -7.0% Net Fixed Assets 1,914 1,950 1,964 1,957 ROAE 15.7% 8.8% 9.5% 10.0% Intangibles & Others 82 72 72 72 ROAIC 11.0% 6.7% 7.5% 8.1% Total Assets 3,267 3,387 3,247 3,367 DPO 35.2% 29.0% 38.0% 39.7% Current Liabilities (Including Debt) 627 623 635 740 Long-Term Liabilities (Including Debt) 743 747 474 357 Net Debt (Cash) / Equity (x) 0.39 0.32 0.27 0.23 Total Net Worth 1,898 2,017 2,138 2,270 Net Debt (Cash) / EBITDA (x) 1.61 1.75 1.43 1.18 Minority Interest Total Equity & Liabilities 3,267 3,387 3,247 3,367 Net Debt 749 651 572 515 Company and Stock Data Price (SAR) 33.06 on 21 August 2016 Income Statement Revenue 1,658 1,417 1,549 1,706 Bloomberg / Reuters SCERCO AB / 2040.SE (mn) (mn) EBITDA 467 372 401 437 MKT Cap / Shares SAR1,653 / 50 EBIT 300 198 216 238 3M ADVT (mn) USD2.8 EBT 300 192 212 237 Float 72% Net Income 284 172 198 221 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 346 351 354 338 GOSI: 16.19% CF from Investments (201) (210) (199) (192) Public Investment Fund: 5.4% CF from Finance & Non Operating CF (18) (39) (377) (138)

Source: Saudi Ceramics, EFG Hermes estimates

Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] 152 153 Share Price Performance Relative to TASI (Rebased) SAUDI INDUSTRIAL SERVICES COMPANY | SISCO www.sisco.com.sa SISCO (SAR) TASI 18.0 SAUDI ARABIA 16.0 Industrials 14.0 BUSINESS DESCIPTION Saudi Industrial Services (SISCO) is a holding industrial group that operates in three business areas: Port development and operations (68% of 1H16 revenue), water desalination and distribution (16%) and logistic parks and re-export 12.0 (15%), where the company’s operations are almost fully confined to Jeddah (accounted for 97% of FY15 revenue). Its QUESTIONS four main subsidiaries and areas of operation include: i) Red Sea (60%-owned): development, construction, operation 10.0 and maintenance of container terminals; ii) Saudi Trade & Development Co. [Tusdeer] (76%-owned): development, management, and operation of re-export zones handling containers, vehicles, and general cargo; iii) Kindasa 8.0 (65%-owned): construction and operation of sea-water desalination plants; and iv) Isnad (99%-owned): operation 1. Are you foreseeing any slow-down in new projects due to pressured spending environment in the Kingdom? and maintenance services. SISCO holds investments in four related companies, including a 50% stake in International ...... Water and Distribution (Tawzea) that offers portable water distribution and wastewater treatment, as well as a c33% stake in S.A. Talke, a logistics services provider for the local chemical and petrochemical industries 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. What is the expected impact on the company’s future earnings from the stoppage of operations in Yemen? ...... (SAR) INVESTMENT THESIS Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) SISCO introduced a new strategy in 2014 to transform the business into a holding company, with stakes in several EPS 0.82 1.15 1.33 1.47 3. Which sector and areas are regarded as potential growth drivers in the near term? independent subsidiaries, specialising in various fields. In 2015, Tusdeer signed an agreement for c640k sqm of land DPS 0.00 0.50 0.50 0.50 ...... in Jeddah for 30 years to be used in the development of a logistic park, through a BOT scheme and at an investment BVPS 12.15 13.43 14.29 14.53 cost of SAR550mn. The project will be delivered within eight years (in phases) and will be financed partially by bank loans. Also, in June 2016, the company’s Joint venture, Tawzea, signed an usufruct and renovation contract with 4. Are there any projects currently in the pipeline? Saudi Industrial Property Authority (MODON), for phases two and three of Jeddah Industrial City’s water facilities, P/E (x) 18.4 13.1 11.4 10.3 ...... where SISCO expects the contract’s financial impact to reflect starting 2017. SISCO’s bottom-line grew 23% in 1H16, Dividend Yield 0.0% 3.3% 3.3% 3.3% thanks mainly to strong growth in water desalination and distribution business line income(+151%) which was largely P/BV (x) 1.2 1.1 1.1 1.0 5. Do you plan on increasing/reducing stakes in any of your subsidiaries? contributed for from receiving SAR2.5mn in claims (final payment) for an incident that occurred in 2013, along with FCF Yield 11.1% 18.0% 12.3% 13.2% 6% Y-o-Y growth in the company’s main business line, Port Development and Operations. Growth would have been ...... higher if the company did not book a provision related to the stoppage of operations in Yemen. EV / EBITDA (x) 8.8 8.1 7.7 7.3

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Revenue Growth 9.4% 11.2% 6.6% 0.7% Financial Statements - December Year End (SAR mn) EBITDA Margin 47.7% 46.7% 46.3% 46.6% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 27.3% 27.7% 27.7% 28.0% Current Assets 331 402 408 353 Effective Tax Rate -6.3% -6.1% -5.8% -3.6% Net Fixed Assets 607 634 708 790 Intangibles & Others 1,589 1,545 1,484 1,459 ROAE 4.8% 6.1% 6.5% 7.0% Total Assets 2,527 2,581 2,600 2,602 ROAIC 6.1% 6.8% 7.1% 7.6% Current Liabilities (Including Debt) 218 243 262 288 DPO 0.0% 43.5% 37.6% 34.1% Long-Term Liabilities (Including Debt) 1,090 1,008 904 856 Net Debt (Cash) / Equity (x) 0.76 0.57 0.47 0.47 Total Net Worth 826 913 972 988 Minority Interest 393 417 462 470 Net Debt (Cash) / EBITDA (x) 3.76 2.83 2.39 2.31 Total Equity & Liabilities 2,527 2,581 2,600 2,602 Net Debt 932 764 680 687 Company and Stock Data Price (SAR) 15.10 on 21 August 2016 Income Statement Bloomberg / Reuters SISCO AB / 2190.SE Revenue 520 578 616 637 MKT Cap (mn) / Shares (mn) SAR1,027 / 68 EBITDA 248 270 285 297 3M ADVT (mn) USD2.8 EBIT 142 160 170 179 Float 85% EBT 103 124 141 157 Foreign Ownership Limit 49% Net Income 56 78 91 101 Major Shareholders Cash Flow Statement Zaynel Mfg Ltd 15% CF from Operations 205 264 254 343 CF from Investments (111) (89) (125) (209) CF from Finance & Non Operating CF (48) (111) (150) (174)

Source: Saudi Industrial Services Company (SISCO), EFG Hermes, and Bloomberg Wafaa Baddour, CFA Adham El Badrawy INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 154 155 Share Price Performance Relative to TASI (Rebased) UNITED ELECTRONICS COMPANY (EXTRA) FAIR VALUE SAR24.00 RATING NEUTRAL www.extra.com TASI 59.0 eXtra (SAR) SAUDI ARABIA 52.0

45.0 Consumer Discretionary INVESTMENT THESIS 38.0 United Electronics Company (eXtra) is a leading electronics retailer in Saudi Arabia (c9% 2015 market share). The company sells audio-visual equipment (c50% of revenue), digital and home appliances (c26%), and computers 31.0 (c24%). eXtra launched operations in 2003 and began an aggressive expansion strategy in 2010 to become a leading QUESTIONS big-box retailer in KSA, capitalising on rising discretionary spending and a consumption shift towards organised 24.0 retailers at the time. eXtra currently has 41 stores (38 KSA, one in Bahrain and two in Oman, ex-KSA stores contributed c6% to 2015 revenue). The company is looking to acquire a clothing retailer, with 240+ stores in seven MENA 17.0 countries (no details available, letter of intent expires on 31 July 2016). While we like the company’s relatively strong 1. The electronics market in KSA is witnessing a slowdown. What are the drivers behind this and any updates on that front? How has the company’s market share been returns, balance sheet and free cash flow generation (leasing model with only three stores owned), we are Neutral on performing? eXtra on concerns on store yield and margin recovery (weak electronics market), in light of emphasis on market share ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 acquisition, as well as the slow recovery in consumer confidence post the one-week closure of eight stores during the 21 Nov 15 annual mega-sale in 4Q2014. 2. How has consumer sentiment been since the one-week shut down of eight stores in 4Q14? What has the company been doing to restore it? Valuation Statistics (SAR) 2015a 2016e 2017e 2018e ...... VALUATION & RISKS EPS 1.36 1.48 1.66 1.92 We value eXtra using a five-year discounted-cash-flow (DCF) methodology, yielding a fair value of SAR24.0/share. DPS 0.92 1.00 1.25 1.50 3. What are the company’s store opening plans for the coming three-five years? What will be the format and geographical location of new store launches? Upside risks include: i) faster-than-expected store additions, ii) higher same-store-sales growth on greater footfall, BVPS 14.77 15.25 15.66 16.08 ...... market share gains, etc., iii) stronger-than-expected margins on lower marketing costs, higher supplier rebates and/ or increased direct distribution agreements with suppliers, iv) better-than-expected performance at stores outside P/E (x) 17.69 16.22 14.45 12.47 Saudi Arabia, v) faster-than-expected recovery in KSA’s electronics market, and vi) value-accretive acquisitions 4. What is the company’s margin outlook? Will the focus be on market share acquisition or improving profitability? Dividend Yield 3.8% 4.2% 5.2% 6.3% or greenfield investments. Downside risks include: i) cannibalisation, especially if geographic distribution of Saudi ...... stores is suboptimal, ii) margin compression, particularly if the emphasis on market share acquisition (with a focus on P/BV (x) 1.6 1.6 1.5 1.5 metropolitan cities) continues, iii) slow recovery in store yields as regaining consumer confidence post the 4Q2014 FCF Yield -1.2% 3.3% 2.4% 4.5% 5. What is the expected effect of early store closure, reduced private sector working hours and the opening of retail market to direct foreign investments on the industry store closures takes time, iv) slower-than-expected new store launches, v) prolonged weakness in KSA’s electronics EV / EBITDA (x) 8.2 7.5 6.8 6.2 market, vi) inventory risk, vii) a value-dilutive acquisition, viii) increased competition post planned opening up of KSA’s and eXtra? retail and wholesale sectors to 100% foreign ownership, and ix) negative impact from early store closure proposal...... Key Performance Ratios 2015a 2016e 2017e 2018e Revenue Growth 1.5% 3.1% 6.3% 6.0% (SAR mn) Financial Statements - December Year End EBITDA Margin 2.7% 2.9% 3.0% 3.1% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 1.5% 1.5% 1.6% 1.7% Current Assets 819 856 888 934 Effective Tax Rate -8.0% -4.0% -4.0% -3.5% Net Fixed Assets 478 498 516 525 ROAE 9.3% 9.9% 10.7% 12.1% Intangibles & Others (0) 0 (0) 0 ROAIC 10.3% 11.1% 11.7% 12.7% Total Assets 1,297 1,354 1,405 1,458 DPO 67.6% 67.6% 75.3% 77.9% Current Liabilities (Including Debt) 689 726 760 805 Long-Term Liabilities (Including Debt) 83 86 88 81 Net Debt (Cash) / Equity (x) (0.07) (0.07) (0.04) (0.02) Total Net Worth 532 549 564 579 Net Debt (Cash) / EBITDA (x) (0.36) (0.37) (0.18) (0.09) Minority Interest 0 0 0 0 Total Equity & Liabilities 1,304 1,361 1,412 1,465 Net Debt (36) (41) (21) (12) Company and Stock Data Price (SAR) 23.99 on 21 August 2016 Income Statement Revenue 3,745 3,859 4,103 4,351 Bloomberg / Reuters EXTRA AB / 4003.SE (mn) (mn) EBITDA 101 110 121 134 MKT Cap / Shares SAR864 / 36 EBIT 55 58 64 73 3M ADVT (mn) USD5 EBT 52 55 62 72 Float 40% Net Income 47 53 60 69 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 53 104 98 110 Al Fozan Holding 45% CF from Investments (60) (73) (75) (70) Abdulaziz Al Saghyir Commercial Investment Company 15% CF from Finance & Non Operating CF 3 (37) (52) (60)

Source: eXtra, EFG Hermes estimates

Hatem Alaa, CFA Nada Amin INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 156 157 Share Price Performance Relative to TASI (Rebased) YAMAMA CEMENT FAIR VALUE SAR40.60 RATING BUY www.yamamacement.com Yamama Cement (SAR) TASI 45.0 SAUDI ARABIA 40.0 Materials 35.0 INVESTMENT THESIS Yamama Saudi Cement Company (YSCC) operates a c6.3 mtpa cement plant in Riyadh in the central region (c30% of local demand, high demand region) and has an estimated market share of 9.6% in Saudi Arabia. We do not 30.0 incorporate capacity additions and expect flatish earnings in 2015 on lower sales volume. The company plans to QUESTIONS relocate its plant and expand capacity, but we exclude this from our forecasts due to delays in the start of the project. 25.0 After receiving approval for quarry licence in Kharj from the relevant authorities last July, Yamama finalised a contract with German ThyssenKrupp Industrial Solutions AG for two production lines at its new plant outside Riyadh, with 20.0 a capacity of 20k tonnes of clinker/day (c8% larger in capacity than the current production line), in line with the 1. What is the outlook for demand for the remainder of the year and next year? company’s plan to relocate its plant outside Riyadh. It is not clear if the company will remove lines from the current ...... plant or not. The project is estimated to cost SAR4.2 billion, of which SAR2.7 billion will be for the two production lines only, while the rest for power station, gas project and others. Trial and commercial production dates and financing of 2. Will you benefit from the export ban removal? Which would be the potential countries to export to? 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 the project are yet to be announced, hence we do not incorporate the expected capacity addition into our forecasts. 21 Nov 15 ...... Valuation Statistics (SAR) 2015a 2016e 2017e 2018e VALUATION & RISKS EPS 3.17 2.95 3.02 3.18 3. What is the progress of relocating your current plant? Our DCF Valuation for Yamama yields a fair value (FV) of SAR40.6/share. We have a Buy rating on Yamama, with DPS 3.00 2.25 2.25 2.50 ...... capacity expansion a main catalyst for upgrade forecast. Proceeding with capacity expansion plan through replacing BVPS 18.31 19.20 19.97 20.64 old production lines (as part of the relocation) is an upside risk to our forecasts and valuation. Further ease in fuel subsidy and ability to secure energy for the added capacity are main downside risks. 4. How will you finance your new plant? P/E (x) 6.97 7.48 7.31 6.95 ...... Dividend Yield 13.6% 10.2% 10.2% 11.3% P/BV (x) 1.2 1.1 1.1 1.1 5. Do you expect to sell your old plant? FCF Yield 5.4% 15.1% 14.9% 15.7% ...... EV / EBITDA (x) 4.3 4.7 4.6 4.4

Key Performance Ratios 2015a 2016e 2017e 2018e Revenue Growth -1.3% -1.3% 2.2% 4.4% (SAR mn) Financial Statements - December Year End EBITDA Margin 67.7% 62.2% 62.2% 62.2% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 53.1% 46.5% 46.6% 46.9% Current Assets 1,435 1,902 2,181 2,451 Effective Tax Rate -5.4% -5.0% -5.0% -5.0% Net Fixed Assets 1,429 1,329 1,222 1,107 ROAE 17.3% 15.7% 15.4% 15.7% Intangibles & Others 1,153 981 988 995 ROAIC 23.3% 19.3% 21.2% 23.1% Total Assets 4,017 4,213 4,390 4,553 DPO 94.6% 76.3% 74.5% 78.6% Current Liabilities (Including Debt) 243 258 281 307 Long-Term Liabilities (Including Debt) 66 66 66 66 Net Debt (Cash) / Equity (x) (0.16) (0.28) (0.33) (0.38) Total Net Worth 3,707 3,888 4,044 4,180 Net Debt (Cash) / EBITDA (x) (0.69) (1.35) (1.62) (1.83) Minority Interest Total Equity & Liabilities 4,017 4,213 4,390 4,553 Net Debt (611) (1,084) (1,335) (1,571) Company and Stock Data Price (SAR) 22.08 on 21 August 2016 Income Statement Revenue 1,311 1,294 1,322 1,380 Bloomberg / Reuters YACCO AB / 3020.SE (mn) (mn) EBITDA 888 804 822 858 MKT Cap / Shares SAR4,471 / 203 EBIT 696 601 615 647 3M ADVT (mn) USD3.4 EBT 678 629 644 678 Float 77% Net Income 642 597 612 644 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 673 777 767 798 HH Prince Sultan Mohammed Saud Al Kabir Al Saud 10% CF from Investments (432) (103) (99) (97) General Organization for Social Insurance 8% CF from Finance & Non Operating CF (807) (225) (417) (466)

Source: Yamama Cement, EFG Hermes estimates

Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] 158 159 TOGO

ECOBANK 162 Share Price Performance Relative to Nigerian All Shares Index (Rebased) ECOBANK www.ecobank.com 20 Ecobank (NGN) Nigerian All Share Index 19 TOGO 18 17 Financials 16 BUSINESS DESCIPTION 15 Ecobank Transnational Incorporated (ETI) was established in 1985 by the federation of West Africa’s Chamber of 14 Commerce and Industry. The bank commenced operations in Togo in 1988, and it operates today in 36 countries, 13 with over 1,268 branches and offices and a client base of c11mn customers. ETI operates in West Africa (Francophone QUESTIONS and Anglophone), Central, Eastern and Southern Africa (CESA), in addition to Nigeria. The group has also offices in 12 Paris, Beijing, Dubai, Johannesburg, London and Luanda. The main contributors to the bank’s assets are Nigeria (39%) 11 and Francophone West Africa (30%). The bank provides a full range of consumer and commercial banking services 10 and products, in addition to corporate and investment banking services through its subsidiary, Ecobank Development 1. Non-performing loans have increased in the first six months of 2016. Which countries are driving credit quality deterioration? And what are your expectations for the rest Company. ETI’s loan book stood at USD10.2bn, whilst it had deposits of USD14.3bn in June 2016, and is listed on the of the year, bearing in mind that the IMF has slashed the region’s GDP growth by close to 250bps from its January estimate of 1.6% in FY16? Nigerian, Ghanaian and Abidjan stock exchanges. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15

INVESTMENT THESIS 2. How has the depreciation of the Nigerian Naira affected lending demand and credit quality in Nigeria? (USD) Ecobank is a pan-African banking group with operations in 36 countries across Africa. ETI’s large and diversified Valuation Statistics 2013a 2014a 2015a 1H16a (TTM) African presence offers potential for growth, especially as most of the countries it has a presence in have low banking EPS 0.004 0.014 0.003 (0.001) DPS 0.00 0.00 0.20 N/A penetration rates and high economic growth prospects. Ecobank’s profitability was hit in 2015-2016 by credit quality 3. Is capital adequacy ratio tight in the Nigerian subsidiary, following the depreciation of the Naira? deterioration and increasing cost of risk, and also currency depreciation. The Nigerian market, the key contributor to BVPS 0.08 0.10 0.10 0.08 Ecobank’s assets, has seen a strong consolidation phase since 2005 with the number of commercial banks down from 89 to 24 and is highly concentrated (assets market share of the top five banks is 51%). The Nigerian banking system P/E (x) 8.4 2.4 12.3 N/M saw strong growth in 2011-2014 boosted by the high oil price; however, the low oil price over the past couple of years Dividend Yield 0.0% 0.0% 6.0% N/A 4. Could you give us a split of countries by contribution to assets, loans, deposits and earnings? and subdued macro backdrop has increased NPLs. P/BV (x) 0.4 0.3 0.3 0.4 Mkt Cap / Deposits 4.9% 4.6% 4.9% 5.6% 5. Are there any particular regulations in any of the countries where you operate that could constrain earnings capacity, balance sheet growth or capital adequacy in the ROAE 4.9% 15.4% 2.7% -1.2% ROAA 0.4% 1.4% 0.3% -0.1% short term?

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Growth in Loans 21.0% 7.8% -9.0% -13.6% Financial Statements - December Year End (USD mn) Growth in Deposits 12.8% 5.7% -5.8% -11.7% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) Loans / Deposits 69.3% 70.6% 68.2% 71.2% Cash & Central Bank 2,878 3,547 3,245 2,342 Growth in Net Interest Inc. 23.8% 5.6% 3.3% 5.1% Interbank Assets 1,312 1,883 1,770 1,327 Growth in Non-Interest Inc. 8.1% 22.9% -17.9% -15.5% Loans (Net) 11,422 12,312 11,200 10,158 Financial Investments 3,446 3,407 4,558 4,413 Net Interest Margin 7.20% 6.80% 7.80% 7.10% Fixed & Other Assets 3,475 3,096 2,780 2,799 Cost / Income 70.1% 65.4% 64.9% 65.9% Total Assets 22,532 24,244 23,554 21,039 NPL Ratio 6.2% 4.4% 8.2% 8.6% Due to Banks 707 913 704 1,671 NPL Coverage Ratio 79.0% 68.7% 67.9% 63.3% Customer Deposits 16,490 17,437 16,428 14,261 Provisions 29 26 29 41 Capital Adequacy Ratio* 16.3% 20.5% 23.9% 23.9% Dividend Payable & Other Liabilities 3,172 3,212 3,871 2,938 Total Liabilities 20,398 21,588 21,031 18,911 Company and Stock Data Minority Interest 198 204 177 176 Price (NGN) 11.5 on 19 August 2016 Shareholders' Equity 1,936 2,451 2,346 1,952 Total Shareholders' Equity & Liabilities 22,532 24,244 23,554 21,039 Bloomberg / Reuters ETI.NL / ETI.LG MKT Cap (mn) / Shares (mn) USD804 / 24,100 Income Statement 3M ADVT (mn) USD3.0 Net Interest Income 1,051 1,109 1,146 1,174 Float 39% Non-Interest Income 953 1,170 960 881 Foreign Ownership Limit No Limit Total Banking Income 2,003 2,280 2,106 2,055 Operating Expense (1,405) (1,491) (1,368) (1,354) Major Shareholders Total Provisions (377) (267) (532) (603) Other Income/Expense 0 (2) (1) (1) Nedbank 20.7% Income before Taxes 2,225 520 205 97 Qatar National Bank 18.0% Net Income 148 395 107 16 Minority Interest (52) (57) (42) (41) PIC (GEPF) 13.8% Net Attributable Income 96 338 66 (25)

Source: Ecobank, EFG Hermes, and Bloomberg Elena Sanchez-Cabezudo, CFA Rajae Aadel INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 162 163 UAE

ALDAR PROPERTIES 166 Year-end December 2013a 2014a 2015e 2016f 2017f AMANAT HOLDINGS 168 Nominal GDP (USD bn) 387.5 399.7 362.7 363.7 393.5 DAMAC PROPERTIES 170 Real GDP growth (%) 4.3 4.6 4.9 2.4 2.8 DP WORLD 172 CPI inflation, annual average (%) 1.1 2.3 4.1 3.0 2.5 DUBAI ISLAMIC BANK 174 Current account balance (USD bn) 74.2 58.8 21.6 13.2 21.0 EMIRATES NBD 176 Current account balance (% of GDP) 19.1 14.7 5.9 3.6 5.3 EMIRATES REIT 178 Fiscal balance (USD bn) 40.4 19.9 (16.1) (22.3) (12.8) ETISALAT GROUP 180 Fiscal balance (% of GDP) 10.4 5.0 (4.4) (6.1) (3.3) FIRST GULF BANK 182 Population (mn) 9.0 9.3 9.6 9.9 10.1 NATIONAL BANK OF ABU DHABI 184 Source: UAE Central Bank, IMF, and EFG Hermes estimates RAK CERAMICS 186 TABREED 188 UNION NATIONAL BANK 190 Share Price Performance Relative to ADX Index (Rebased) ALDAR PROPERTIES www.aldar-sorouh.com Aldar Properties (AED) ADX Index 2.9 UAE 2.7 2.5 Real Estate & Hospitality BUSINESS DESCIPTION 2.3 Aldar Properties is Abu Dhabi’s largest real estate player with access to 75mn sqm of land bank, offering 5.9mn sqm of GFA across Yas Island, Shams Abu Dhabi and Al-Raha Beach. projects The company manages and owns 2.1 Abu Dhabi largest mall, Yas Mall, the biggest asset within its 460,000 sqm retail portfolio. In addition, it manages a 1.9 QUESTIONS portfolio of 4,800 residential units and a GLA of 181,000 sqm of office space. This is in addition to 2,536 hotel keys, 90% of which is in Yas Island. Aldar acts as the government’s main partner in the sector, playing a crucial role in the 1.7 implementation of the Abu Dhabi 2030 plan. The existing company is a result of a merger between Aldar Properties 1.5 PJSC and Sorouh Real Estate PJSC, which was completed in mid-2013. 1. What is your take on the Abu Dhabi property market? Can you provide some colour on the current demand/supply dynamics in Abu Dhabi? How do you expect prices to behave over the medium term compared to Dubai? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 INVESTMENT THESIS 21 Nov 15 Aldar’s strategy is based on three main pillars: i) monetizing the company’s land bank; ii) optimizing and strengthening 2.  With the company’s investment portfolio almost fully leased out, what would be the driver for growth going forward? Any expansionary plans in place for the company’s the company’s balance sheet; and iii) increasing recurring income and maximizing the value of the company’s recurring Valuation Statistics (AED) 2013a 2014a 2015a 1H16a (TTM) revenue portfolio. Concrete steps have been taken in that direction with: i) more than 7,000 units delivered since the hotel portfolio? EPS 0.34 0.28 0.32 0.34 merger and up to c7,500 to be launched over the coming five years; ii) gross debt levels falling by c60% to AED6.0bn ...... DPS DVD 0.09 0.10 0.10 in June 2016, down from AED14bn in 2012; and iii) decent growth in recurring income was witnessed with the expansion of the company’s investment portfolio. The company’s net operating income (NOI) from recurring sources BVPS 2.08 2.30 2.54 2.59 3. Could you please give more details on the company’s AED3bn investment plan? has doubled between 2013 and 2015 to reach AED1.4bn with the stablisation of key assets (The Yas Mall, Gate Towers, and Rayyana), now contributing the bulk of the company’s revenue (72% in 2015). By 2020, Aldar targets P/E (x) 8.4 10.0 8.8 8.3 ...... to grow its NOI from recurring income stream by 40% through new investments worth AED3bn in its investment Dividend Yield 0.0% 3.2% 3.5% 3.5% portfolio, of which one-third is already announced. We also note that Aldar has recently announced that its board - P/BV (x) 1.4 1.2 1.1 1.1 starting this year - plans to recommend to shareholders the distribution of between 65% to 80% of free cash flow FCF Yield 12.8% 22.8% 24.6% 10.1% from investment properties and 100% owned operating companies. This will be supplemented by a discretionary percentage of the total realised cash profits on the completion of development projects. EV / EBITDA (x) 15.3 18.3 12.0 15.2

Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) Land bank (mn sqm) 75.0

Financial Statements - December Year End (AED mn) Revenue Growth -52.7% 22.5% -32.6% 3.5% EBITDA Margin 27.9% 19.1% 41.8% 28.9% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) EBIT Margin 22.2% 15.6% 37.2% 24.3% Development Properties 6,094 4,686 4,445 4,937 Net Investment Properties 12,026 14,401 15,570 15,788 Effective Tax Rate 0.0% 0.0% 0.0% 0.0% Other Assets 25,608 19,462 16,125 15,300 ROAE 18.1% 12.8% 13.1% 13.1% Total Assets 43,728 38,549 36,141 36,025 ROAIC 0.3% 4.4% 4.0% 4.8% Current Liabilities (Including Debt) 21,205 12,403 10,030 9,574 DPO 0.0% 31.7% 31.0% 29.3% Long-Term Liabilities (Including Debt) 5,875 7,773 5,822 5,823 Total Net Worth 16,375 18,076 20,000 20,393 Net Debt (Cash) / Equity (x) 0.57 0.25 (0.02) 0.02 Minority Interest 273 298 289 235 Net Debt (Cash) / EBITDA (x) 6.32 3.60 (0.16) 0.25 Total Equity & Liabilities 43,728 38,549 36,141 36,025 Net Debt 9,492 4,505 (313) 381 Company and Stock Data Price (AED) 2.84 on 21 August 2016 Income Statement Bloomberg / Reuters ALDAR UH / ALDR.AD Revenue 5,380 6,551 4,586 5,229 MKT Cap (mn) / Shares (mn) AED22,330 / 7,863 EBITDA 1,502 1,252 1,915 1,509 3M ADVT (mn) USD7.4 EBIT 1,193 1,024 1,705 1,270 Float 63% EBT (25) 1,792 2,362 2,696 Foreign Ownership Limit 40% Net Income 2,225 2,266 2,849 2,675 Major Shareholders Cash Flow Statement Mubadala Development 30% CF from Operations 4,417 6,662 6,008 2,835 Al-Sariya Commercial 8% CF from Investments (603) 66 (3,350) (1,232) CF from Finance & Non Operating CF (2,746) (5,680) (4,179) (1,888)

Source: Aldar Properties, EFG Hermes, and Bloomberg Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 166 167 Share Price Performance Relative to DFMGI (Rebased) AMANAT HOLDINGS www.amanat.ae 0.90 Amanat Holdings (AED) DFMGI

0.85 UAE

0.80 Financials 0.75 BUSINESS DESCIPTION Amanat was established in 2014 (IPO in November 2014) with the purpose of investing in companies and enterprises 0.70 in the field of education and healthcare. In addition it focuses on managing, developing and operating such companies and enterprises. The company aims to provide investors efficient exposure to the healthcare and education sectors. The 0.65 QUESTIONS company delivers its value proposition through three distinct ways: i) platform companies – transforming established 0.60 growth companies, ii) social infrastructure projects – developing and funding infrastructure projects related to the needs of platform companies, iii) corporate ventures – creation of new companies built on proven business models. 0.55 The leadership team of Amanat comprises an experienced and well-integrated team with deep sector knowledge and 1. How does the macro slow-down in Saudi Arabia and UAE affect the outlook of Amanat’s focus sectors – health and education? expertise and a large direct and indirect network of contacts to source opportunities. 0.50 ......

2. What are the short-term and long-term opportunities in these sectors? INVESTMENT THESIS 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 Management believes that the outlook for the healthcare and education sectors are favourable in the GCC. These 21 Nov 15 ...... sectors are non-cyclical and undersupplied. Amanat believes these sectors provide a basic need, which is why they are typically less exposed to economic cycles. In the healthcare sector, there is a capiacty gap according to management. Valuation Statistics (AED) 2015a 1H16a (TTM) 3. What is the management’s target ROE from its target investments? In the GCC there are 1.3-2.6 beds / 1000 whereas in OECD countries it is 4.8 beds / 1000 (Source: OECD, WHO). EPS 0.02 0.03 ...... Management reckons that there is also a quality gap in healthcare in the region. In the education sector the gap DPS 0.00 0.00 is more around quality as the in GCC countries lag behind more mature education markets in performance on BVPS 1.02 1.02 international student assessments. The company has initially prioritised KSA and UAE to develop and invest in health care and education companies. P/E (x) 40.6 28.2 Dividend Yield 0.0% 0.0% P/BV (x) 0.8 0.8 FCF Yield EV / EBITDA (x) (1.7) (3.5)

(AED mn) Financial Statements - December Year End Key Performance Ratios 2015a 1H16a (TTM) Balance Sheet 2015a 1H2016a (TTM) Revenue Growth N/A 121.9% Current Assets 2,358 2,187 EBITDA Margin 56.5% 73.3% Net Fixed Assets 1 2 EBIT Margin 56.5% 73.3% Intangibles & Others 206 360 Effective Tax Rate 0.0% 0.0% Total Assets 2,566 2,549 Current Liabilities (Including Debt) 8 6 ROAE N/A 2.9% Long-Term Liabilities (Including Debt) - - ROAIC N/A 2.9% Total Net Worth 2,558 2,543 DPO 0.0% 0.0% Minority Interest - - Net Debt (Cash) / Equity (x) (0.92) (0.85) Total Equity & Liabilities 2,566 2,549 Net Debt (2,348) (2,157) Net Debt (Cash) / EBITDA (x) (26.22) (90.62)

Income Statement Company and Stock Data Revenue 90 32 Price (AED) 0.82 on 21 August 2016 EBITDA 51 24 Bloomberg / Reuters AMANAT UH / AMANT.DU EBIT 51 24 MKT Cap (mn) / Shares (mn) AED2,073 / 2,528 EBT 51 24 3M ADVT (mn) USD0.4 Net Income 51 24 Float 57% Cash Flow Statement Foreign Ownership Limit 49% CF from Operations (17) (9) Major Shareholders CF from Investments (1,866) (2,800) RIMCO Investment 10% CF from Finance & Non Operating CF 2,506 2,486 Osool Asset Management 10% Source: AMANAT Holdings, EFG Hermes, and Bloomberg Astro Cayman 5%

Shabbir Malik Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 168 169 Share Price Performance Relative to ADX Index (Rebased) DAMAC PROPERTIES FAIR VALUE AED2.27 RATING NEUTRAL www.damacproperties.com Damac Properties (AED) ADX Index 3.5 UAE 3.2

2.9 Real Estate & Hospitality

INVESTMENT THESIS 2.6 Damac is a Dubai-based developer, offering high-end luxury property in the Middle East, with a strong focus on Dubai. The company had ventured into the master-planned projects’ model with two project launches in 2013-14. The two 2.3 projects, Akoya by Damac and Akoya Oxygen together represent c92% of the company’s land bank of c105mn QUESTIONS sqft. We estimate the combined sales value of both projects at cAED45bn (USD12.2bn), of which cAED15bn had 2.0 been contracted up until December 2015. Besides changing the product offering through launching units in master- 1.7 planned communities, management is attempting to tap new markets to widen its buyer’s base, where it had recently tapped the Chinese market and has plans to attract buyers from India. We highlight that the bulk of the company’s 1. What is your take on the Dubai property market? What is your outlook for real estate prices over the next three years? How is the prevailing volatility in oil prices affecting current buyers’ base is from the Middle East, a big portion of which is GCC-nationals, whom we believe may show the business? lower appetite for real estate investment, in light of the high volatility in oil prices. We have a relatively cautious view ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 on booked sales in 2016-17e (c17% on average below 2015 levels), in line with our sector view, assuming further 21 Nov 15 drops in residential property prices of 10-15% over 2016-17, with pricing stability starting to show its signs towards end of 2017. We believe Damac will underperform the overall sector performance, in a backdrop of an expected 2. Update on sales for Akoya, Akoya Oxygen and Aykon City? Any changed noticed in the profile of buyers? (AED) market softness, given its relatively undiversified revenue mix, with full reliance on property sales, hence, limiting cash Valuation Statistics 2015a 2016e 2017e 2018e ...... flow and earnings visibility. EPS 0.75 0.59 0.62 0.58 DPS 0.25 0.25 0.25 0.30 3. Any plans for the new land acquisitions? What is the strategy there? BVPS 1.62 1.96 2.34 2.62 ...... VALUATION & RISKS We set our fair value of AED2.27 per share on 0.8x 2016e NAV. Our assigned discount to NAV is in line with the stock’s P/E (x) 3.31 4.20 3.96 4.24 trading history to its forward-looking NAV since its listing in January 2015. We estimate 2016e NAV at AED2.83 per 4. Could you please elaborate on management’s plans to create a recurring income portfolio? Dividend Yield 10.1% 10.1% 10.1% 12.1% share. Our NAV is derived by valuing the company’s development plan for its projects based on management’s master ...... plans, in terms of sellable area and our assumptions for selling prices, costs, and the pace of sales throughout the P/BV (x) 1.5 1.3 1.1 0.9 cycle. Downside risks to our valuation include a hard landing in Dubai property prices and/or lower-than-expected sales FCF Yield 18.0% 42.5% 9.3% 8.1% volumes that would, in turn, place pressure on the company’s cash flow position and may result in the stock trading EV / EBITDA (x) 2.0 2.5 2.4 2.6 at steeper discount to its full NAV, given bearish market conditions. On the upside: i) a faster-than-expected pick-up in P/NAV (x) 0.87 sales volumes and prices, ii) further land acquisitions in prime locations, and iii) expansions in markets outside of Dubai. Key Performance Ratios 2015a 2016e 2017e 2018e Financial Statements - December Year End (AED mn) Land Bank (mn sqft) 105.0

Balance Sheet 2015a 2016e 2017e 2018e Revenue Growth 128.2% -15.1% 9.1% 6.6% Cash and Cash Equivalents 9,501 9,786 9,684 9,313 EBITDA Margin 53.4% 50.4% 47.6% 42.0% Short-term Receivables 9,144 9,219 9,653 10,708 EBIT Margin 53.2% 50.3% 47.5% 41.9% Intangibles & Others 4,803 5,408 5,440 5,304 Effective Tax Rate 0.0% 0.0% 0.0% 0.0% Total Assets 23,447 24,413 24,777 25,325 Current Liabilities (Including Debt) 8,709 8,201 6,128 7,604 ROAE 62.9% 32.8% 29.0% 23.5% Long-Term Liabilities (Including Debt) 4,908 4,337 4,514 1,875 ROAIC 169.0% 77.2% 58.6% 42.2% Total Net Worth 9,831 11,875 14,135 15,846 DPO 33.5% 42.5% 40.1% 51.5% Minority Interest - - - - Net Debt (Cash) / Equity (x) (0.58) (0.55) (0.47) (0.41) Total Equity & Liabilities 23,447 24,413 24,777 25,325 Net Debt (5,736) (6,521) (6,660) (6,573) Net Debt (Cash) / EBITDA (x) (1.26) (1.78) (1.77) (1.86)

Income Statement Company and Stock Data Revenue 8,536 7,248 7,908 8,432 Price (AED) 2.47 on 21 August 2016 EBITDA 4,556 3,655 3,765 3,539 Bloomberg / Reuters DAMAC UH / DAMAC.DU EBIT 4,544 3,649 3,759 3,533 MKT Cap (mn) / Shares (mn) AED14,944 / 6,050 EBT 4,515 3,556 3,767 3,519 (mn) Net Income 4,515 3,556 3,767 3,519 3M ADVT USD1.5 Float 14% Cash Flow Statement Foreign Ownership Limit 49% CF from Operations 2,410 6,354 1,396 1,225 Major Shareholders CF from Investments 275 (8) (9) (9) Hussein Ali Sajwani and family 86% CF from Finance & Non Operating CF 560 (500) (1,753) (1,797)

Source: DAMAC Properties, EFG Hermes estimates

Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 170 171 Share Price Performance Relative DFMGI (Rebased) DP WORLD FAIR VALUE AED22.00 RATING BUY www.dpworld.com 24.0 DP World (USD) DFMGI UAE 22.0

Transportation Infrastructure 20.0 INVESTMENT THESIS DP World (DPW) is the fifth largest marine terminal operator in the world, with 65+ terminals spanning six continents. 18.0 Container operations (c9% market share, 40-year average concession life) account for 70%+ of revenue and higher- margin origin and destination (O&D) cargo accounts for c70% of volumes. We estimate consolidated capacity will QUESTIONS increase to c43mn TEU in 2016 from c35mn in 2012 on expansions, acquisitions and greenfields. The company is 16.0 increasing Jebel Ali port’s (55% of consolidated volume, 90%+ utilisation, sole operator) by 2.5mn TEU in 2016-17 to reach 19.5mn TEU, and plans to add 3.1mn TEU in new T4 when demand improves. Including partly-owned terminals, 14.0 gross capacity stands at c76mn TEU with plans to expand it to c100mn TEU by 2020. DPW is well positioned to endure 1. When do you expect Jebel Ali to return to volume growth? Is it possible that you will delay the start of operations of the new 1.5mn TEU capacity beyond 2017? lower growth in global trade and tightening of spending in some GCC countries, in our view, as: i) in March 2015 ...... DPW acquired Economic Zones World (EZW), owner of Jebel Ali Free Zone (JAFZ), which offers a visible revenue stream 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 at high margin, ii) DPW is adding capacity in promising emerging markets or in preferred locations in mature markets, 21 Nov 15 2. How does the cut in government spending in the GCC affect your business? and iii) DPW focuses on container trade that caters mostly to the consumer sector, making it less vulnerable to an anticipated slowdown in infrastructure spending in some GCC markets (eg. KSA)...... Valuation Statistics (AED) 2015a 2016e 2017e 2018e VALUATION & RISKS EPS 1.06 1.09 1.20 1.36 3. Is transhipment business more affected by the trade slowdown than O&D? What is the difference in margins between the two segments? We value DP World at a fair value of USD22.0/share using a discounted cash flow methodology. We use a weighted DPS 0.30 0.28 0.30 0.34 ...... average cost of capital of 9.5% and terminal growth rate of 3.0%. Key downside risks are: i) uncertain impact of BVPS 10.56 11.80 12.73 13.79 the Brexit on DPW European operations (15% of consolidated capacity), ii) DPW’s failure to continue attracting new clients for its European operations and hence become vulnerable to slowdown in Far East-Europe container trade, 4. Do you still see expansion and acquisition opportunities and if so, in which regions? What opportunities do you see in Iran if any? and iii) a cut in GCC consumer spending that negatively impacts container trade. Iran may present opportunities for P/E (x) 17.77 17.28 15.78 13.88 ...... Jebel Ali and could host new terminals and logistics parks. However such opportunities may take time to materialise Dividend Yield 1.6% 1.5% 1.6% 1.8% until private sector involvement and country trade increase, especially as Iran ports currently operate at suboptimal P/BV (x) 1.8 1.6 1.5 1.4 5. What is the outlook for margins in the short and medium term, post the positive impact witnessed from consolidating higher-margin EZW and higher than expected utilisation rates. FCF Yield -15.1% 2.0% 2.9% 7.3% margin in 1H16? EV / EBITDA (x) 11.6 10.8 10.2 9.5 ......

Key Performance Ratios 2015a 2016e 2017e 2018e Revenue Growth 16.3% 8.9% 5.1% 7.2% Financial Statements - December Year End (AED mn) EBITDA Margin 48.6% 47.9% 48.3% 48.7% Balance Sheet 2015a 2016e 2017e 2018e EBIT Margin 36.5% 36.1% 36.2% 36.6% Current Assets 2,252 3,501 3,252 3,512 Effective Tax Rate -8.6% -14.0% -14.0% -14.0% Net Fixed Assets 6,969 8,378 9,030 9,121 Intangibles & Others 11,038 10,896 10,907 10,924 ROAE 10.2% 9.6% 9.8% 10.3% Total Assets 20,259 22,775 23,189 23,556 ROAIC 10.2% 8.7% 8.6% 9.0% Current Liabilities (Including Debt) 1,915 5,483 5,353 6,076 DPO 28.2% 25.2% 25.2% 25.2% Long-Term Liabilities (Including Debt) 9,210 6,748 6,403 5,028 Net Debt (Cash) / Equity (x) 0.71 0.63 0.56 0.44 Total Net Worth 8,767 9,797 10,563 11,442 Minority Interest 368 746 870 1,010 Net Debt (Cash) / EBITDA (x) 3.23 2.97 2.70 2.12 Total Equity & Liabilities 20,259 22,775 23,189 23,556 Net Debt 6,234 6,145 5,926 5,024 Company and Stock Data Price (AED) 18.90 on 21 August 2016 Income Statement Bloomberg / Reuters DPW DU / DPW.DI Revenue 3,968 4,320 4,541 4,866 MKT Cap (mn) / Shares (mn) USD15,687 / 830 EBITDA 1,928 2,070 2,192 2,370 3M ADVT (mn) USD3.5 EBIT 1,448 1,561 1,644 1,779 Float 20% EBT 1,061 1,186 1,299 1,476 Foreign Ownership Limit No Limit Net Income 883 908 994 1,130 Major Shareholders Cash Flow Statement Dubai World 80% CF from Operations 1,833 1,893 1,993 2,137 CF from Investments (3,868) (1,200) (1,200) (681) CF from Finance & Non Operating CF (252) (566) (1,114) (1,293)

Source: DP World, EFG Hermes estimates Wafaa Baddour, CFA INSIGHTS INTO THE NEW REALITY [email protected] 172 173 Share Price Performance Relative DFMGI (Rebased) DUBAI ISLAMIC BANK FAIR VALUE AED5.80 RATING NEUTRAL www.dib.ae Dubai Islamic Bank (AED) DFMGI 7.0 UAE 6.5

6.0 Financials

INVESTMENT THESIS 5.5 Majority-owned by the Investment Corporation of Dubai, Dubai Islamic Bank (DIB) is the UAE’s largest Islamic bank by assets. It has one of the largest consumer deposit bases in the UAE and is the market leader in auto finance, 5.0 mortgages, and consumer finance. Loan growth has been c4x the sector’s growth in 2015, aided by i) excess liquidity, QUESTIONS ii) focus on broadening the customer base, and iii) growing Islamic banking penetration. We expect DIB’s loan growth 4.5 to continue to outpace the sector’s helped by Dubai’s relatively strong macro. The bank’s credit quality metrics have 4.0 improved, however signs of fragility in the retail segment makes us cautious on the bank’s provisioning outlook for 2016. We have a Neutral rating on DIB with a fair value (FV) of AED5.8/share. 1. NIMs: NIM has been under pressure in 1H16. Is this pressure likely to continue? What measures are being taken to cope with this challenge? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 VALUATION & RISKS 2. Loan growth: Loan growth was strong in 1H16 – YTD 12%. Guidance for 2016 is 15%. Is management looking to revise its guidance upwards, or is there likely to be a Our fair value (FV) of AED5.8/share is based on a two-stage discounted equity cash flow (DECF) model. In the first stage, we calculate cash flows based on our detailed forecasts for the bank. In the second stage, we calculate a Valuation Statistics (AED) 2015a 2016e 2017e 2018e slow-down in 2H16? terminal value using a 3.5% growth rate in cash flows beyond eight years. We use a 12.5% discount rate for DIB EPS 0.60 0.58 0.64 0.71 ...... (risk-free 5%, Beta 1x and ERP 8%). Our FV implies a 2016e P/BV of 1.8x for the bank. Key upside risk is lower-than- DPS 0.36 0.35 0.38 0.43 expected provisioning. Key downside risk is sharper-than-expected contraction in spreads due to systemic funding BVPS 2.30 3.17 3.43 3.71 3. Credit quality: What is the outlook for retail credit quality in light of layoffs in sectors such as banking and energy? Corporate credit quality has been healthy so far, but constraints. does the bank expect this to change in 2H16? P/E (x) 9.3 9.6 8.7 7.8 ...... Dividend Yield 6.5% 6.3% 6.7% 7.6% P/BV (x) 2.4 1.8 1.6 1.5 Mkt Cap / Deposits 25.0% 21.2% 18.6% 17.2%

ROAE 27.4% 21.1% 19.3% 19.9% ROAA 2.2% 1.7% 1.7% 1.7% Financial Statements - December Year End (AED mn)

Balance Sheet 2015a 2016e 2017e 2018e Key Performance Ratios 2015a 2016e 2017e 2018e Cash & Central Bank 13,415 15,830 23,672 25,565 Growth in Loans 31.4% 20.1% 11.6% 7.5% Interbank Assets 5,085 4,727 1,367 2,169 Growth in Deposits 19.1% 18.0% 14.0% 8.0% Loans (Net) 97,220 116,728 130,284 139,993 Loans / Deposits 88.4% 89.9% 88.1% 87.6% Financial Investments 28,119 32,165 35,891 38,363 Growth in Net Interest Inc. 20.3% 2.9% 19.2% 12.4% Fixed & Other Assets 6,059 7,135 7,890 8,436 Total Assets 149,898 176,585 199,103 214,527 Growth in Non-Interest Inc. 6.4% 12.6% 9.0% 6.0% Due to Banks 4,713 8,706 13,273 14,334 Net Interest Spread 3.08% 2.59% 2.66% 2.69% Customer Deposits 109,981 129,778 147,947 159,783 Net Interest Margin 3.20% 2.75% 2.83% 2.87% Bonds & Long-Term Loans 5,602 2,937 - - Cost / Income 38.0% 37.6% 36.6% 36.2% Dividend Payable & Other Liabilities 8,587 9,732 11,031 12,013 Total Liabilities 128,883 151,153 172,250 186,130 NPL Ratio 5.2% 4.0% 4.5% 5.0% Minority Interest 2,325 2,441 2,563 2,691 NPL Coverage Ratio 95.4% 122.1% 115.8% 113.9% Shareholders' Equity & Other Capital 18,690 22,991 24,290 25,706 Capital Adequacy Ratio 15.7% 17.2% 17.1% 17.0% Total Shareholders' Equity & Liabilities 149,898 176,585 199,103 214,527 Company and Stock Data Income Statement Price (AED) 5.56 on 21 August 2016 Net Interest Income 4,109 4,228 5,040 5,664 Bloomberg / Reuters DIB UH / DISB.DU Non-Interest Income 1,721 1,938 2,112 2,239 (mn) (mn) Total Banking Income 5,830 6,166 7,152 7,903 MKT Cap / Shares AED27,479 / 4,942 (mn) Operating Expense (2,214) (2,320) (2,621) (2,860) 3M ADVT USD9.7 Total Provisions (410) (790) (1,171) (1,287) Float 63% Other Income/Expense 276 290 304 320 Foreign Ownership Limit 25% Income before Taxes 3,482 3,345 3,665 4,076 Major Shareholders Net Income 3,249 3,103 3,335 3,719 Appropriations (284) (250) (182) (203) Investment Corporation of Dubai 30% Net Attributable Income 2,966 2,853 3,153 3,516 Saeed Ahmad Lootah 7%

Source: Dubai Islamic Bank (DIB), EFG Hermes estimates Shabbir Malik Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 174 175 Share Price Performance Relative to DFMGI (Rebased) EMIRATES NBD FAIR VALUE AED10.00 RATING BUY www.emiratesnbd.com 10.0 Emirates NBD (AED) DFMGI 9.5 UAE 9.0 8.5 Financials INVESTMENT THESIS 8.0 Emirates NBD (ENBD) is the UAE’s largest bank, in terms of assets, with strong positions in all major banking areas, including: retail, Islamic, corporate and investment banking. ENBD is focusing on the retail, SME, as well as Islamic 7.5 banking segments for growth. We believe there is scope for improvement in the bank’s provisioning, which in our 7.0 QUESTIONS view has not normalised yet. We expect recoveries from cAED21 billion in fully provisioned loans to support earnings. 6.5 While sustained growth in lending to Dubai government is a risk, the four-year time horizon, steady capital build-up and focus on revenue diversification should prevent disruption in profitability due to unwinding of the exposure. We 6.0 have a Buy rating on ENBD. 1. NIMs: Why did the bank cut its NIM guidance for 2016 to 2.55-2.65% from 2.70-2.85%? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 VALUATION & RISKS 21 Nov 15 2. Credit quality: Provisioning has been on a down-trend in 1H16 due to provision releases. Does management expect these reversals to persist in 2H16? Our fair value (FV) of AED10.0/share is based on a two-stage discounted equity cash flow (DECF) model, where expected future cash flows accruing to equity holders are discounted to arrive at an estimated FV. In the first stage, Valuation Statistics (AED) 2015a 2016e 2017e 2018e ...... we calculate cash flows based on our detailed forecasts for the bank. In the second stage, we calculate a terminal EPS 1.17 1.19 1.25 1.38 value using a 2.0% terminal growth rate in cash flows beyond eight years. We use a 12.5% discount rate for ENBD DPS 0.40 0.45 0.45 0.50 3. FGB-NBAD merger: The competitive landscape is changing. With the merger of FGB and NBAD, ENBD would lose its leading market share in the UAE. How is ENBD (risk-free 4.5%, Beta 1x and ERP 8%). Key downside risks are: i) tighter-than-expected net interest spread, and ii) BVPS 5.94 6.69 7.49 8.37 positioned to cope with competition from a new large player in the market? higher-than-expected provisioning as the credit cycle turns...... P/E (x) 7.0 6.9 6.6 5.9 Dividend Yield 4.9% 5.5% 5.5% 6.1% P/BV (x) 1.4 1.2 1.1 1.0 Mkt Cap / Deposits 15.9% 15.0% 14.3% 13.6%

ROAE 20.9% 18.8% 17.6% 17.4% Financial Statements - December Year End (AED mn) ROAA 1.7% 1.6% 1.6% 1.7%

Balance Sheet 2015a 2016e 2017e 2018e Key Performance Ratios 2015a 2016e 2017e 2018e Cash & Central Bank 54,975 58,273 61,187 64,246 Growth in Loans 10.0% 8.6% 4.3% 4.4% Interbank Assets 39,837 33,614 38,144 43,686 Loans (Net) 270,581 293,912 306,570 320,025 Growth in Deposits 11.2% 6.0% 5.0% 5.0% Financial Investments 17,605 18,662 19,595 20,575 Loans / Deposits 94.2% 96.5% 95.9% 95.3% Fixed & Other Assets 19,850 20,640 21,260 21,906 Growth in Net Interest Income 7.4% 0.4% 9.1% 8.9% Total Assets 402,847 425,101 446,756 470,437 Growth in Non-Interest Income 0.8% -2.1% 1.4% 2.0% Due to Banks 19,071 28,194 38,538 41,663 Customer Deposits 287,232 304,466 319,689 335,674 Net Interest Spread 2.37% 2.12% 2.17% 2.23% Bonds & Long-Term Loans 34,960 25,837 16,903 15,704 Net Interest Margin 2.52% 2.31% 2.38% 2.45% Dividend Payable & Other Liabilities 13,059 13,987 14,562 15,442 Cost / Income 32.4% 34.5% 33.7% 33.5% Total Liabilities 354,322 372,484 389,691 408,484 NPL Ratio 7.1% 6.2% 6.5% 7.0% Minority Interest 6 6 6 7 Shareholders' Equity & Other Capital 48,520 52,611 57,058 61,947 NPL Coverage Ratio 112.2% 132.7% 135.9% 133.8% Total Shareholders' Equity & Liabilities 402,847 425,101 446,756 470,437 Capital Adequacy Ratio 20.7% 21.2% 21.7% 22.4%

Income Statement Company and Stock Data Net Interest Income 9,651 9,690 10,577 11,519 Price (AED) 8.20 on 21 August 2016 Non-Interest Income 4,987 4,881 4,951 5,050 Bloomberg / Reuters EMIRATES UH / ENBD.DU Total Banking Income 14,637 14,571 15,528 16,569 MKT Cap (mn) / Shares (mn) AED45,574 / 5,558 Operating Expense (4,740) (5,033) (5,233) (5,546) 3M ADVT (mn) USD0.9 Total Provisions (3,406) (2,959) (3,355) (3,359) Float 39% Other Income/Expense 166 170 178 187 Income before Taxes 6,657 6,749 7,117 7,851 Foreign Ownership Limit 5% Net Income 6,512 6,593 6,949 7,669 Major Shareholders Appropriations (1) (1) (1) (1) Investment Corporation of Dubai 56% Net Attributable Income 6,512 6,592 6,948 7,668 Jumaa Al Majed Abdullah 5% Source: Emirates NBD (ENBD), EFG Hermes estimates Shabbir Malik Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 176 177 Share Price Performance Relative to DFMGI (Rebased) EMIRATES REIT FAIR VALUE USD1.24 RATING NEUTRAL www.reit.ae Emirates REIT Limited (USD) DFMGI 1.3 UAE 1.2 Real Estate & Hospitality 1.1 INVESTMENT THESIS Emirates REIT is an externally managed REIT, which owns a portfolio of eight properties (172,075 sqm of NLA) 1.0 diversified amongst office, education and retail segments within Dubai. The REIT’s business model relies on active asset management strategy, including tenant mix reshuffling, extending lease duration and asset enhancement initiatives 0.9 QUESTIONS (AEIs). Emirates REIT, IPOed in April 2014, has raised USD201mn that were utilised entirely in acquisitions during the year, closing the largest acquisition since its inception in June 2014 and acquiring 372,000 sqft. of Grade ‘A’ office 0.8 space (The Index tower), thus, increasing its exposure to Dubai’s office market. We believe the REIT’s asset portfolio would enjoy above-market growth rates, given its assets’ premium location, quality and active management. We 1. What is your view on the outlook for the office/retail market in Dubai over the coming three years? How is the economic slowdown affecting the segment? estimate property income to grow at 2015-19e CAGR of 21.4% and net income (excluding revaluation gains) at ...... 41.2%, which would be driven primarily by the lease of the properties at The Index tower. The main challenges 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 facing management, in our view, are: i) improving the portfolio’s yield, given the weight of the vacant properties in 2. What is REIT’s strategy for future acquisitions going forward? the overall portfolio, thus, we would favour future acquisitions of already-occupied assets rather than those under development, and ii) maintaining current dividend pay-out ratios in face of the REIT’s planned capex over the coming ...... (AED) two years. Valuation Statistics 2015a 2016e 2017e 2018e EPS 0.21 0.21 0.21 0.15 3. What is the plan for the rest of the Index Tower office space, in terms of the breakdown between fit-out and core-and-shell, and what is the plan for the retail component? DPS 0.08 0.08 0.08 0.09 ...... VALUATION & RISKS BVPS 1.57 1.62 1.74 1.80 Our fair value of USD1.24 per share for Emirates REIT is derived from a ten-year discounted dividend model (DDM). We assume a cost of equity of 10.5%, a terminal growth rate of 3% and an average pay-out ratio of 95% over 4. What is the dividend policy going forward? P/E (x) 5.37 5.17 5.24 7.26 our forecast horizon. Our valuation is driven primarily by The Index tower properties, which is currently vacant and ...... Dividend Yield 7.3% 7.3% 7.3% 8.2% attracted tenants starting 2015. Given the significance of The Index tower properties in our valuation, we calculate that should rent rates witness a 20% cut vs. our base case assumptions, valuation would drop c.12%. Thus, we P/BV (x) 0.7 0.7 0.6 0.6 highlight the high sensitivity to changes in the properties’ assumptions. It is worth noting that we did not include any FCF Yield -8.1% -21.2% -18.5% -3.6% future acquisitions in our forecast or valuation. Downside risks include: i) slowdown in business activity in Dubai, ii) EV / EBITDA (x) 35.4 23.4 20.7 13.7 slower-than-expected leasing of The Index tower properties, and iii) higher interest rates that would make dividend P/NAV (x) 0.70 yields less attractive. On the upside: i) higher-than-estimated rent rates and/or occupancies in The Index tower properties, and ii) further acquisitions in value-accretive segments. Key Performance Ratios 2015a 2016e 2017e 2018e Net Leasable Area (sqm '000) 172.1 Financial Statements - December Year End (AED mn) Revenue Growth 12.4% 33.7% 15.9% 26.7% Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 35.7% 40.3% 39.4% 46.9% Cash and Cash Equivalents 64 47 38 45 EBIT Margin 35.7% 40.3% 39.4% 46.9% Investment Properties 673 756 835 874 Intangibles & Others 4 5 6 6 Effective Tax Rate 0.0% 0.0% 0.0% 0.0% Total Assets 741 808 878 925 ROAE 13.6% 13.4% 12.5% 8.6% Current Liabilities (Including Debt) 38 136 193 245 ROAIC 2.4% 3.2% 3.3% 4.7% Long-Term Liabilities (Including Debt) 233 187 163 140 DPO 39.0% 37.6% 38.0% 59.3% Total Net Worth 470 485 521 540 Minority Interest - - - - Net Debt (Cash) / Equity (x) 0.41 0.49 0.52 0.54 Total Equity & Liabilities 741 808 878 925 Net Debt (Cash) / EBITDA (x) 13.07 10.59 10.78 7.66 Net Debt 194 237 273 293

Income Statement Company and Stock Data Revenue 41 55 64 81 Price (USD) 1.10 on 21 August 2016 EBITDA 15 22 25 38 Bloomberg / Reuters REIT DU / REIT.DI EBIT 15 22 25 38 MKT Cap (mn) / Shares (mn) USD330 / 300 EBT 8 13 14 26 3M ADVT (mn) USD0.1 Net Income 61 64 63 45 Float 49% Foreign Ownership Limit No Limit Cash Flow Statement CF from Operations 17 13 18 27 Major Shareholders CF from Investments (44) (83) (79) (39) Dubai Islamic Bank 16% CF from Finance & Non Operating CF 74 3 3 (0) Vintage Bullion 12% Dubai Properties Group 10% Source: Emirates REIT, EFG Hermes estimates Mai Attia Sara Boutros INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 178 179 Share Price Performance Relative to ADX Index (Rebased) ETISALAT GROUP FAIR VALUE AED18.63 RATING NEUTRAL www.etisalat.com Etisalat (AED) ADX Index 20.0 UAE 18.0 Telecommunication Services 16.0 INVESTMENT THESIS Etisalat is the UAE’s incumbent telecom operator and is also one of the largest telecom groups in the MENA region 14.0 by subscribers, with a total subscriber base of over 180 million. The operator’s footprint spans 19 markets in the MEA (Middle East & Africa) region, as well as in Asia. Etisalat is one of the largest listed telecom stocks by market QUESTIONS capitalisation in the MENA region. The company offers exposure to a combination of value, through its mature 12.0 operations (mostly UAE and Saudi Arabia), and growth, through a portfolio of international investments in emerging growth markets (mostly Egypt, Africa and Pakistan). Up until 2012, the UAE operation (the largest contributor to our 10.0 valuation) had been affected negatively by competition in a tight market and low macroeconomic growth following 1. Does management think that the operating environment in UAE has gotten more aggressive in 2016? When will infrastructure sharing (bit-stream access) be availed the burst of UAE’s property bubble in 2008, resulting in a decline in revenue, margins and profitability. Meanwhile, for triple-play? international operations had grown to cushion this negative impact partially. The UAE unit, however, had an impressive ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 turnaround in 2013, following the internal restructuring and efficiency programme that Etisalat undertook starting 21 Nov 15 2011. We currently have a Neutral rating on Etisalat as we see valuations as rather expensive following the opening to foreign ownership. 2. How will Etisalat Misr finance the USD-denominated portion (50%) of the 4G licence price in Egypt? Is the group willing to provide a shareholder loan? What are the Valuation Statistics (AED) 2015a 2016e 2017e 2018e licence terms? Does management think the Egyptian market can accommodate a fourth mobile operator? EPS 0.95 0.98 1.02 1.06 ...... VALUATION & RISKS DPS 0.80 0.80 0.80 0.80 We value Etisalat at AED14.9/share, using a sum-of-the-parts (SOTP) valuation methodology, and we add a 25% BVPS 5.00 5.59 5.81 6.07 3. What operating efficiencies does Etisalat envisage following the sale of its portfolio of sub-Saharan African operations to IAM? Can one expect margins to climb to levels valuation premium to reflect strong inflows following the stock’s inclusion in MSCI EM. This puts our FV at AED18.63/ share. The largest contributor to our value for Etisalat remains the UAE operation (78%), followed by Maroc Telecom similar to those of IAM’s existing west-African operations? P/E (x) 20.84 20.16 19.36 18.69 (12%), Mobily in Saudi Arabia (5%) and Etisalat Misr in Egypt (3%), whilst other operations jointly contribute c2% of ...... Dividend Yield 4.0% 4.0% 4.0% 4.0% the total value. Upside risks to our valuation include: i) the launch of bitstream access (infrastructure sharing) in the P/BV (x) 4.0 3.5 3.4 3.3 UAE, which will provide Etisalat with access to geographic areas where its competitor had fixed-line and broadband 4. Are there any potential acquisitions on your radar? If not, would you increase dividend distributions? service exclusivity, and ii) further improvement in the performance of the UAE operation, in terms of growth and FCF Yield 1.7% 5.7% 6.0% 6.2% ...... margins. Further competition in the UAE is the main downside risk to our valuation. Moreover, in the ongoing low EV / EBITDA (x) 8.7 8.2 7.9 7.7 oil price environment and efforts from GCC governments the cut budget deficits, we see a risk of increase in royalty EV / Sub. (AED) 2,070 1.969 1.866 1.783 rates. 5. What is the turnaround strategy adopted for Mobily? Are there any developments in the tower sale process and when do you expect it to be done? Would you sell Key Performance Ratios 2015a 2016e 2017e 2018e towers in any other markets? Financial Statements - December Year End (AED mn) Total Subscribers (mn) 167 190 200 209 ......

Balance Sheet 2015a 2016e 2017e 2018e Revenue Growth 6.1% 2.9% 1.9% 2.7% Current Assets 41,680 40,053 43,312 47,082 EBITDA Margin 50.8% 50.3% 50.4% 50.4% Net Fixed Assets 46,270 45,996 46,246 46,431 EBIT Margin 36.1% 36.2% 36.2% 36.1% Intangibles & Others 40,314 42,222 40,855 39,564 Effective Tax Rate -43.5% -47.1% -46.9% -46.8% Total Assets 128,265 128,270 130,414 133,077 Current Liabilities (Including Debt) 42,636 38,141 37,407 39,186 ROAE 19.3% 18.5% 17.9% 17.8% Long-Term Liabilities (Including Debt) 26,254 20,149 19,642 16,788 ROAIC 18.2% 16.5% 15.9% 16.1% Total Net Worth 43,489 48,588 50,523 52,777 DPO 84.2% 81.5% 78.2% 75.5% Minority Interest 15,886 21,392 22,842 24,326 Net Debt (Cash) / Equity (x) 0.01 (0.09) (0.14) (0.20) Total Equity & Liabilities 128,265 128,270 130,414 133,077 Net Debt 658 (3,657) (7,102) (10,800) Net Debt (Cash) / EBITDA (x) 0.03 (0.14) (0.26) (0.38)

Income Statement Company and Stock Data Revenue 51,737 53,232 54,242 55,705 Price (AED) 19.80 on 21 August 2016 EBITDA 26,269 26,768 27,360 28,091 Bloomberg / Reuters ETISALAT UH / ETEL.AD EBIT 18,688 19,295 19,661 20,091 MKT Cap (mn) / Shares (mn) AED172,196 / 8,697 EBT 16,843 18,843 19,493 20,118 (mn) Net Income 8,263 8,540 8,892 9,212 3M ADVT USD9.8 Float 40% Cash Flow Statement Foreign Ownership Limit 20% CF from Operations 15,789 16,459 17,146 17,515 Major Shareholders CF from Investments (12,807) (6,088) (6,494) (6,724) Emirates Investment Authority 60% CF from Finance & Non Operating CF (4,110) (14,228) (7,850) (7,594)

Source: Etisalat Group, EFG Hermes estimates

Omar Maher Karim Riad INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 180 181 Share Price Performance Relative to ADX Index (Rebased) FIRST GULF BANK FAIR VALUE AED13.70 RATING NEUTRAL www.fgb.ae First Gulf Bank (AED) ADX Index 15.5 UAE 14.5

13.5 Financials INVESTMENT THESIS 12.5 First Gulf Bank (FGB) is the UAE’s largest bank by market capitalisation and is majority-owned by the ruling family of Abu Dhabi. Initially, a corporate bank predominantly, FGB expanded into retail banking and real estate segments. 11.5 FGB is in the process of broadening its offerings in the retail and corporate banking segments. It acquired Dubai First QUESTIONS in 2013 – a Dubai-based consumer finance company – to expand its presence in Dubai and broaden its customer 10.5 base. The bank is also expanding its geographical reach by expanding its presence selectively in Asia. FGB is in process of merging with NBAD to create the #1 bank in the UAE by assets. While the merger is likely to generate cost and 9.5 revenue synergies, we believe it will restrain hold back FGB’s managerial dynamism and generous div policy. We have 1. Credit quality: Management reduced its NPL guidance to <3% from <3.5%? What factors give management confidence that the credit quality would improve a Neutral rating on FGB. in 2H16 (1H16: 3.1%)? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 VALUATION & RISKS 2. Fee income: Fee income was quite strong in 2Q16. What were the drivers of this trends and are these sustainable? Our fair value (FV) of AED13.7/share is based on a two-stage discounted equity cash flow (DECF) model. In the first Valuation Statistics (AED) 2015a 2016e 2017e 2018e stage, we calculate cash flows based on our detailed forecasts for the bank. In the second stage, we calculate a ...... EPS 1.31 1.21 1.25 1.28 terminal value using a 3% terminal growth rate in cash flows beyond seven years. We use a discount rate of 11.5% DPS 1.00 0.85 0.80 0.90 for FGB. Our FV translates into a target 2017 P/BV multiple of 2.0x. Key downside risks to our Neutral rating on FGB is 3. Loan growth: You expect improved credit appetite from the corporate segment. In which sectors do you expect this demand to originate from? higher-than-expected provisioning due to pressure on retail and SME segments. Key upside risk is wider spreads owing BVPS 6.09 6.45 6.90 7.28 ...... to better-than-expected balance sheet management. P/E (x) 9.1 9.9 9.5 9.3 Dividend Yield 8.4% 7.1% 6.7% 7.6% P/BV (x) 2.0 1.8 1.7 1.6 Mkt Cap / Deposits 37.6% 35.5% 33.1% 31.0%

ROAE 21.9% 19.2% 18.8% 18.0% Financial Statements - December Year End (AED mn) ROAA 2.7% 2.4% 2.3% 2.2%

Balance Sheet 2015a 2016e 2017e 2018e Key Performance Ratios 2015a 2016e 2017e 2018e Cash & Central Bank 21,076 22,340 23,904 25,578 Growth in Loans 7.2% 4.5% 4.5% 5.6% Interbank Assets 13,598 14,381 18,896 22,628 Loans (Net) 149,766 156,465 163,550 172,645 Growth in Deposits 0.8% 6.0% 7.0% 7.0% Financial Investments 30,974 26,764 28,037 29,399 Loans / Deposits 105.1% 103.6% 101.2% 99.9% Fixed & Other Assets 12,083 12,630 13,204 13,925 Growth in Net Interest Income 0.4% -0.7% 4.8% 5.7% Total Assets 227,496 232,580 247,592 264,174 Growth in Non-Interest Income 20.1% -12.6% 1.0% -1.3% Due to Banks 17,883 32,228 38,856 43,439 Customer Deposits 142,463 151,010 161,581 172,892 Net Interest Spread 3.00% 2.82% 2.84% 2.79% Bonds & Long-Term Loans 20,081 6,810 2,437 575 Net Interest Margin 3.13% 2.97% 2.97% 2.93% Dividend Payable & Other Liabilities 15,265 9,110 9,255 10,101 Cost / Income 21.3% 20.5% 21.1% 21.6% Total Liabilities 195,692 199,158 212,130 227,006 NPL Ratio 2.8% 3.3% 3.2% 3.0% Minority Interest 400 418 418 418 Shareholders' Equity & Other Capital 31,404 33,004 35,044 36,750 NPL Coverage Ratio 102.9% 101.6% 120.3% 139.6% Total Shareholders' Equity & Liabilities 227,496 232,580 247,592 264,174 Capital Adequacy Ratio 17.5% 17.7% 17.9% 17.9%

Income Statement Company and Stock Data Net Interest Income 6,346 6,304 6,609 6,982 Price (AED) 11.90 on 21 August 2016 Non-Interest Income 2,988 2,613 2,638 2,605 Bloomberg / Reuters FGB UH / FGB.AD Total Banking Income 9,333 8,917 9,247 9,587 MKT Cap (mn) / Shares (mn) AED53,550 / 4,500 Operating Expense (1,992) (1,831) (1,947) (2,071) 3M ADVT (mn) USD6.0 Total Provisions (1,454) (1,652) (1,652) (1,753) Float 33% Other Income/Expense 17 18 18 19 Income before Taxes 5,904 5,451 5,666 5,783 Foreign Ownership Limit 25% Net Income 5,891 5,439 5,654 5,770 Major Shareholders Appropriations (13) (13) (13) (14) Abu Dhabi Ruling Family 67% Net Attributable Income 5,878 5,425 5,640 5,756

Source: First Gulf Bank, EFG Hermes estimates Shabbir Malik Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 182 183 Share Price Performance Relative to ADX Index (Rebased) NATIONAL BANK OF ABU DHABI FAIR VALUE AED9.00 RATING NEUTRAL www.nbad.com NBAD (AED) ADX Index 11.0 10.5 UAE 10.0 9.5 Financials 9.0 INVESTMENT THESIS 8.5 Majority-owned by the Government of Abu Dhabi, National Bank of Abu Dhabi (NBAD) is one of the largest banks 8.0 in the UAE by market capitalisation. Although primarily a corporate bank, NBAD is looking to build its positioning 7.5 in retail, commercial and wealth management segments. The bank is also growing its international presence, and 7.0 QUESTIONS its overseas operations currently generate c20% of revenue. NBAD’s asset quality metrics – NPL ratio of c3.0% and 6.5 NPL coverage of over 100% – are amongst the best in UAE banks. Management’s focus has been on diversifying the 6.0 bank’s sources of funding to compensate for contraction in government deposits. The bank investment cycle is nearly complete and cost growth should moderate from 2016e. We have a Neutral rating on NBAD. 1. Liquidity: Sector data shows that government deposits have declined in July. What steps has the bank taken to reduce its dependence on government deposits? Sector data also shows that non-resident deposits are declining. Has there been a reduction in deposits in the bank’s international business? ...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 VALUATION & RISKS 21 Nov 15 Our fair value (FV) of AED9.0/share is based on a two-stage discounted equity cash flow (DECF) model, where expected future cash flows accruing to equity holders are discounted to arrive at our estimated FV. In the first stage, 2. NIM: Provisioning in 2Q16 was high relative to guidance? What drove provisioning in 2Q16, and can we expect an improvement going forward? (AED) we calculate cash flows based on our detailed forecasts for the bank. In the second stage, we calculate a terminal Valuation Statistics 2015a 2016e 2017e 2018e ...... value using a 3% terminal growth rate in cash flows beyond eight years. We use a 11.5% discount rate for NBAD. EPS 0.97 0.94 1.01 1.09 Our FV translates into an implied 2016 P/BV multiple of 1.3x. Downside risk is higher-than-expected cost of funds due DPS 0.45 0.40 0.45 0.50 3. Brexit, and Egypt’s macro challenges: How is the bank positioned to cope with the headwinds that are likely to emanate from these developments? to a liquidity crunch. Upside risk is higher oil price and lower-than-expected provisioning. BVPS 6.57 7.10 7.67 8.26 ......

P/E (x) 9.8 10.1 9.4 8.7 Dividend Yield 4.7% 4.2% 4.7% 5.3% P/BV (x) 1.4 1.3 1.2 1.1 Mkt Cap / Deposits 21.1% 19.9% 18.8% 17.9%

ROAE 15.2% 13.7% 13.7% 13.7% Financial Statements - December Year End (AED mn) ROAA 1.3% 1.2% 1.3% 1.3%

Balance Sheet 2015a 2016e 2017e 2018e Key Performance Ratios 2015a 2016e 2017e 2018e Cash & Central Bank 76,382 80,965 85,823 90,114 Growth in Loans 6.0% 3.8% 4.8% 4.9% Interbank Assets 24,222 737 4,971 8,337 Loans (Net) 205,914 213,719 224,037 235,043 Growth in Deposits -3.9% 6.0% 6.0% 5.0% Financial Investments 76,085 84,267 84,068 82,755 Loans / Deposits 88.1% 86.2% 85.3% 85.2% Fixed & Other Assets 23,961 24,901 26,108 27,393 Growth in Net Interest Income 4.0% 0.6% 8.3% 6.7% Total Assets 406,564 404,589 425,007 443,642 Growth in Non-Interest Income -2.7% 1.0% 5.9% 5.4% Due to Banks 73,359 62,760 66,526 69,852 Customer Deposits 233,815 247,843 262,714 275,850 Net Interest Spread 1.80% 1.73% 1.83% 1.86% Bonds & Long-Term Loans 27,737 18,102 14,897 12,142 Net Interest Margin 1.88% 1.84% 1.95% 1.98% Dividend Payable & Other Liabilities 30,774 32,220 34,289 36,146 Cost / Income 39.4% 39.3% 38.9% 38.7% Total Liabilities 365,685 360,926 378,426 393,991 NPL Ratio 2.8% 3.0% 3.2% 3.2% Minority Interest - - - - Shareholders' Equity & Other Capital 40,879 43,663 46,581 49,651 NPL Coverage Ratio 104.8% 102.8% 100.2% 102.7% Total Shareholders' Equity & Liabilities 406,564 404,589 425,007 443,642 Capital Adequacy Ratio 16.7% 17.1% 17.5% 17.9%

Income Statement Company and Stock Data Net Interest Income 7,106 7,146 7,736 8,252 Price (AED) 9.49 on 21 August 2016 Non-Interest Income 3,249 3,280 3,473 3,660 Bloomberg / Reuters NBAD UH / NBAD.AD Total Banking Income 10,355 10,426 11,209 11,911 MKT Cap (mn) / Shares (mn) AED49,440 / 5,210 Operating Expense (4,083) (4,095) (4,364) (4,611) 3M ADVT (mn) USD2.5 Total Provisions (943) (1,179) (1,276) (1,295) Float 30% Other Income/Expense - - - - Income before Taxes 5,329 5,152 5,569 6,005 Foreign Ownership Limit 25% Net Income 5,031 4,863 5,257 5,669 Major Shareholders Source: National Bank of Abu Dhabi, EFG Hermes estimates Abu Dhabi Investment Council 70%

Shabbir Malik Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 184 185 Share Price Performance Relative to ADX Index (Rebased) RAK CERAMICS FAIR VALUE AED4.30 RATING BUY www.rakceramics.com Rak Ceramics (AED) ADX Index 3.8 UAE 3.6

3.4 Industrials INVESTMENT THESIS 3.2 Ras Al Khaimah Ceramics (RAK Ceramics) is one of the world’s leading ceramics makers, supplying over 160 countries 3.0 with annual production output of c104 million square metres of tiles, 4.65 million pieces of sanitary ware and 24 million tableware products. In 2004-10, RAK Ceramics successfully completed its expansion projects in its core 2.8 QUESTIONS ceramics business, with tiles capacity growing from 52.4 million sqm in 2004 to its current levels of c104 million sqm. 2.6 RAK plans to increase its Bangladesh tiles capacity by c45% to 11.6 million sqm in 2016 and sanitary ware capacity by 25% to 1.6 million pieces in 2015. It aims to increase its SW capacity in UAE by 22% to 3.3 million pieces in 2016 2.4 and to follow a more aggressive outsourcing strategy in its Indian operations. Ceramic products accounted for 84% 1. What is the outlook for demand for the remainder of the year and next year? of 2014 revenue, contracting 3%. RAK Ceramics expects 6-10% annual volume growth in global markets, with ...... higher demand in the Middle East and South Asia. The company has a plan to control its operating costs to improve profitability through enhancing energy efficiency. In recent years, RAK Ceramics disposed of non-core mineral assets 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. What is the progress for your expansions? (2012) and overseas real estate assets (2013), and closed non-performing contracting operations (2011-12). The company plans to divest most of its remaining non-core contracting operations in the near future...... Valuation Statistics (AED) 2015a 2016e 2017e 2018e EPS 0.34 0.42 0.46 0.51 3. What is your capex guidance for the coming two years? VALUATION & RISKS DPS 0.30 0.25 0.30 0.30 ...... We value RAK Ceramics using a discounted cash flow (DCF) model, yielding a fair value (FV) of AED4.30 per share. BVPS 3.59 3.98 4.13 4.33 We use a five-year discounted cash flow (DCF) model to value RAK Ceramics, which yields cAED3.4/ share, based on a risk-free-rate (RFR) estimate of c6.2%, an equity risk premium of 7.5% and a terminal growth rate of 2.5%. 4. Is there any progress regarding selling your land? P/E (x) 9.18 7.55 6.80 6.15 In calculating the RFR we applied a weighted average RFR to reflect the company’s operations in different countries...... Dividend Yield 9.5% 7.9% 9.5% 9.5% We are assuming 75% weight of equity. We include 60% or AED0.90/share of RAK’s total investment properties of AED1.5 billion as of March 2015. The main downside risks are: i) postponement of the new expansions that would P/BV (x) 0.9 0.8 0.8 0.7 have a negative impact on our forecasts, ii) fluctuation in energy prices, iii) FX risks, given the company’s operations in FCF Yield 3.8% 11.7% 13.7% 14.7% several countries, iv) slower-than-expected recovery and uncertainty regarding the impact of lower oil prices in GCC EV / EBITDA (x) 8.0 7.2 6.7 6.2 countries, especially Saudi Arabia.

Key Performance Ratios 2015a 2016e 2017e 2018e Financial Statements - December Year End (AED mn) Revenue Growth 5.4% 18.8% 7.7% 6.6%

Balance Sheet 2015a 2016e 2017e 2018e EBITDA Margin 17.5% 16.4% 16.4% 16.5% Current Assets 3,251 3,781 4,051 4,314 EBIT Margin 11.1% 10.3% 10.4% 10.7% Net Fixed Assets 1,248 1,298 1,244 1,198 Effective Tax Rate -6.7% -7.0% -7.0% -7.0% Intangibles & Others 1,483 1,324 1,315 1,307 ROAE 9.5% 10.7% 11.5% 12.1% Total Assets 5,982 6,403 6,611 6,819 Current Liabilities (Including Debt) 1,648 2,340 2,551 2,562 ROAIC 7.1% 7.7% 8.3% 8.9% Long-Term Liabilities (Including Debt) 1,396 810 682 714 DPO 87.2% 59.7% 64.6% 58.3% Total Net Worth 2,768 3,031 3,163 3,336 Net Debt (Cash) / Equity (x) 0.55 0.41 0.38 0.34 Minority Interest 169 222 215 207 Net Debt (Cash) / EBITDA (x) 2.98 2.24 2.01 1.76 Total Equity & Liabilities 5,982 6,403 6,611 6,819 Net Debt 1,610 1,343 1,296 1,220 Company and Stock Data Income Statement Price (AED) 3.16 on 21 August 2016 Revenue 3,079 3,658 3,938 4,199 Bloomberg / Reuters RAKCEC UH / RKCE.AD EBITDA 539 599 645 694 MKT Cap (mn) / Shares (mn) AED2,713 / 858 EBIT 341 375 411 449 3M ADVT (mn) USD0.5 EBT 334 361 400 443 Float 50% Net Income 281 342 380 420 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 354 462 523 570 Samena Limestone Company: 19.1% CF from Investments (172) (165) (176) (195) H.H Sheikh Saud Bin Saqr Al Qasimi: 7.1% CF from Finance & Non Operating CF (266) (246) (308) (339)

Source: RAK Ceramics, EFG Hermes estimates

Tarek El-Shawarby INSIGHTS INTO THE NEW REALITY [email protected] 186 187 Share Price Performance Relative to DFMGI (Rebased) TABREED www.tabreed.com 1.6 Tabreed (AED) DFMGI 1.5 UAE 1.4 Industrials 1.3 BUSINESS DESCIPTION 1.2 National Central Cooling Company (Tabreed) is a UAE-based company that offers district cooling services to UAE and GCC countries (Qatar, Saudi Arabia, Bahrain and Oman) through its subsidiaries and Joint ventures (10% of 1H16 net 1.1 income). District cooling is a more environmentally friendly alternative to conventional air conditioning (hence, reducing 1.0 QUESTIONS electricity consumption), where chilled water is produced at a central plant and then the water is piped to customers through an underground insulated pipes network. Revenue comprise fixed backlogged revenue from contracted 0.9 capacity expansions (66% of 2015 revenue) and variable revenue linked to consumption (34% of 2015 revenue). Core 0.8 chilled water operations represented 89% of 1H16 revenue. Currently, Tabreed delivers 980k refrigeration tonnes (RT) of 1. Which markets do you see potential growth in? Do you plan to explore any new markets? cooling through its 69 plants in the GCC (61 in UAE). The company’s business model is mostly B2B-focused, specifically, ...... to landmark private and public projects such as the Dubai Metro, UAE University, Ritz Carlton AD and Bahrain World Trade Center. Government projects account for c35% of the group’s connected capacity as of 2015. 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Do you see any significant slow-down in government and private projects? ...... INVESTMENT THESIS Valuation Statistics (AED) 2013a 2014a 2015a 1H16a (TTM) Tabreed’s ability to achieve growth lies in its ability to source new contracts and capacity additions, where contacted EPS 0.08 0.09 0.11 0.13 plants generally offer a foreseeable streamline of revenue. In 2015, Tabreed added c35,000 RT of new customer 3. Do you anticipate any planned changes in retail energy consumption prices that offer opportunities for the district cooling model? DPS 0.05 0.05 0.06 0.06 connections to regional projects including: the Pearl Island and West Bay in Qatar, Jabal Omar Development Project in ...... BVPS 1.35 1.41 1.35 1.52 the Holy city of Mecca and Avenues Mall in Oman. Currently, the company has over 100k RT of contracted projects under construction in the UAE, Qatar and Oman. Furthermore, Tabreed is finalising an agreement with King Khalid 4. Are you expecting any contract renewals in the near term? P/E (x) 19.1 17.0 13.9 11.8 International Airport in Riyadh, Saudi Arabia to build 20k RT; in addition, Dubai Parks’ capacity addition is scheduled ...... for full connection by year-end. Downside risks are limited, given Tabreed’s long-term contracts; nevertheless, the Dividend Yield 3.3% 3.3% 3.9% 3.9% current economic environment in the GCC, coinciding with government spending cuts on the back of weakened P/BV (x) 1.1 1.1 1.1 1.0 government revenue from dropping oil prices, makes it challenging for Tabreed to grow, given the business model’s FCF Yield 88.4% 91.8% 88.0% 99.4% 5. What’s your strongest selling point vs conventional cooling? dependence on landmark projects. Tabreed’s net income grew 4% Y-o-Y in 1H16, largely on the back of 4% increase ...... EV / EBITDA (x) 8.7 8.8 8.8 8.6 in revenue. A 45% surge in share of results from associates and Joint ventures (driven by Saudi Tabreed and Al Maryah plant) was offset by an increase in finance costs due to a partial buyback of mandatory convertible bonds (MCBs). EPS surged 34%, mainly on the back of a lower weighted average number of shares due to MCBs buyback. 6. What are your future plans for the MCBs? Key Performance Ratios 2013a 2014a 2015a 1H16a (TTM) ...... Financial Statements - December Year End (AED mn) Revenue Growth -2.5% 2.8% 3.6% 3.1% EBITDA Margin 46.0% 44.2% 42.9% 42.7% Balance Sheet 2013a 2014a 2015a 1H16a (TTM) Current Assets 1,348 1,188 942 944 EBIT Margin 32.5% 33.1% 32.7% 32.7% Net Fixed Assets 4,896 3,540 3,803 3,899 Effective Tax Rate 0.0% 0.0% 0.0% 0.0% Intangibles & Others 2,181 3,607 3,488 3,531 ROAE 6.0% 6.8% 7.5% 8.4% Total Assets 8,425 8,335 8,233 8,374 ROAIC 4.6% 4.9% 5.1% 5.2% Current Liabilities (Including Debt) 915 860 865 891 Long-Term Liabilities (Including Debt) 2,859 2,544 3,142 3,294 DPO 62.5% 55.6% 54.5% 46.3% Total Net Worth 4,577 4,861 4,160 4,126 Net Debt (Cash) / Equity (x) 0.52 0.42 0.73 0.77 Minority Interest 74 70 65 63 Net Debt (Cash) / EBITDA (x) 4.78 4.18 6.16 6.31 Total Equity & Liabilities 8,425 8,335 8,233 8,374 Net Debt 2,422 2,091 3,097 3,220 Company and Stock Data Income Statement Price (AED) 1.53 on 21 August 2016 Revenue 1,100 1,131 1,172 1,195 Bloomberg / Reuters TABREED UH / TABR.DU EBITDA 506 500 503 510 MKT Cap (mn) / Shares (mn) AED1,130 / 738 EBIT 358 374 383 390 3M ADVT (mn) USD0.7 EBT 265 328 348 357 Float 67% Net Income 272 326 345 352 Foreign Ownership Limit 49%

Cash Flow Statement Major Shareholders CF from Operations 492 326 518 536 General Investments 20% CF from Investments (159) (451) (26) (157) Mubadala Development 13% CF from Finance & Non Operating CF (315) (380) (465) (1,174) Abu Dhabi Commercial 2%

Source: Tabreed, EFG Hermes, and Bloomberg

Wafaa Baddour, CFA Adham El Badrawy INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 188 189 Share Price Performance Relative to ADX Index (Rebased) UNION NATIONAL BANK FAIR VALUE AED5.00 RATING NEUTRAL www.unb.co.ae 7.0 Union National Bank (AED) ADX Index 6.5 UAE 6.0 Financials 5.5 INVESTMENT THESIS 5.0 Union National Bank (UNB) is the only bank in the UAE that both the Abu Dhabi and Dubai governments hold stakes in. UNB has 56 branches in the UAE and a 5% market share of loans. UNB has a subsidiary (UNB-Egypt) which 4.5 offers banking services through 32 branches in Egypt. The bank’s credit exposure is well-diversified, with no sector 4.0 QUESTIONS representing more than 20% of the loan book. Its real estate portfolio (AED1.8 billion as of 4Q2015), which had been 3.5 a drag on earnings (cumulative write-down of AED426 million between 2009 and 2013), has started to contribute to profitability. The credit quality of the bank’s consumer segment, especially the SME sub-segment, has come under 3.0 stress. The bank has addressed its general provisions shortfall and now meets the regulatory minimum. We have a 1. Revenue: UNB’s revenue metrics (NIM, fees and loan growth) have been weak in 1H16. What measures are being taken to cope with this challenge? Neutral rating on UNB...... 21 Aug 15 21 Feb 16 21 May 16 21 Aug 16 21 Nov 15 2. Provisioning: In 2015 provisioning was driven by general provisions and the SME segment. What factors are driving provisions in 2016? Has the bank seen the worst in terms VALUATION & RISKS Our fair value (FV) of AED5.0/share is based on a two-stage discounted equity cash flow (DECF) model, in which Valuation Statistics (AED) 2015a 2016e 2017e 2018e of SME provisioning? In 1H16 provisioning pressure was mitigated by provision releases in the corporate segment. Can these reversals be maintained in 2H16? expected future cash flows accruing to equity holders are discounted to arrive at our estimated FV. In the first stage, EPS 0.65 0.56 0.60 0.70 ...... we calculate cash flows based on our detailed forecasts for the bank. In the second, we calculate a terminal value DPS 0.20 0.18 0.20 0.40 using a 2.5% terminal growth rate in cash flows beyond eight years. We use an 11.5% discount rate for UNB (risk BVPS 5.45 5.84 6.24 6.54 3. FGB-NBAD merger: How is the bank positioned to cope with the challenge of competing with a larger bank in Abu Dhabi? free 4.5%, ERP: 7.0%, Beta: 1x), our base case cost of equity for UAE banks. Our fair value (FV) translates into an ...... estimated target 2016 P/BV multiple of c0.9x. Key upside risk is better-than-expected spreads. Key downside risk is higher-than-expected provisioning. P/E (x) 6.7 7.7 7.3 6.3 Dividend Yield 4.6% 4.0% 4.6% 9.1% P/BV (x) 0.8 0.7 0.7 0.7 Mkt Cap / Deposits 16.1% 15.9% 15.2% 14.3%

ROAE 12.2% 9.9% 9.9% 10.8% ROAA 1.8% 1.5% 1.6% 1.7% Financial Statements - December Year End (AED mn) Key Performance Ratios 2015a 2016e 2017e 2018e Balance Sheet 2015a 2016e 2017e 2018e Cash & Central Bank 11,537 6,798 7,138 7,567 Growth in Loans 6.8% 4.3% 5.3% 6.4% Interbank Assets 2,732 2,050 2,969 3,658 Growth in Deposits 10.9% 1.0% 5.0% 6.0% Loans (Net) 68,429 71,405 75,203 80,048 Loans / Deposits 91.5% 94.5% 94.8% 95.2% Financial Investments 16,604 20,748 20,833 21,241 Growth in Net Interest Income 10.9% -14.8% 8.0% 9.7% Fixed & Other Assets 2,585 2,681 2,806 2,963 Total Assets 101,887 103,683 108,949 115,476 Growth in Non-Interest Income -2.7% 0.5% 4.7% 5.5% Due to Banks 1,254 3,672 3,855 7,257 Net Interest Spread 2.77% 2.11% 2.21% 2.31% Customer Deposits 74,791 75,539 79,316 84,075 Net Interest Margin 2.99% 2.42% 2.52% 2.63% Bonds & Long-Term Loans 5,576 3,171 3,171 - Cost / Income 28.3% 30.6% 30.2% 29.5% Dividend Payable & Other Liabilities 2,921 2,876 3,064 3,766 Total Liabilities 84,542 85,257 89,406 95,097 NPL Ratio 3.5% 3.8% 4.2% 4.2% Minority Interest 169 179 190 203 NPL Coverage Ratio 105.3% 90.1% 75.1% 65.9% Shareholders' Equity & Other Capital 17,176 18,247 19,353 20,176 Capital Adequacy Ratio 19.4% 19.5% 19.7% 19.9% Total Shareholders' Equity & Liabilities 101,887 103,683 108,949 115,476 Company and Stock Data Income Statement Price (AED) 4.37 on 21 August 2016 Net Interest Income 2,859 2,436 2,630 2,886 Bloomberg / Reuters UNB UH / UNB.AD Non-Interest Income 808 812 850 897 (mn) (mn) Total Banking Income 3,668 3,248 3,480 3,783 MKT Cap / Shares AED12,024 / 2,751 (mn) Operating Expense (1,037) (995) (1,052) (1,115) 3M ADVT USD1 Total Provisions (780) (617) (682) (640) Float 40% Other Income / Expense - - - - Foreign Ownership Limit 40% Income before Taxes 1,851 1,636 1,746 2,027 Major Shareholders Net Income 1,800 1,563 1,667 1,936 Appropriations (12) (10) (11) (13) Abu Dhabi Investment Council 50% Net Attributable Income 1,788 1,553 1,656 1,924 Investment Corporation of Dubai 10%

Source: Union National Bank, EFG Hermes estimates Shabbir Malik Murad Ansari INSIGHTS INTO THE NEW REALITY [email protected] [email protected] 190 191 ANALYST CERTIFICATION This research report is only being offered to Major US Institutional Investors and is not available to, and should not be used by, any US person or entity that is not a Major We, EFG Hermes Research Team, hereby certify that the views expressed in this document accurately reflect our personal views about the securities and companies that US Institutional Investor. EFG Hermes Holding SAE cannot and will not accept orders for the securities covered in this research report placed by any person or entity in the are the subject of this report. We also certify that neither we or our spouse[s] or dependants (if relevant) hold a beneficial interest in the securities that are subject of this United States. Orders should be placed with our correspondent, Auerbach Grayson & Co. 212-557-4444. report. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. A Major US Institutional Investor who may receive and use this report must have assets under management of more than USD100,000,000 and is either an investment company registered with the SEC under the US Investment Company Act of 1940, a US bank or savings and loan association, business development company, small busi- IMPORTANT DISCLOSURES ness investment company, employee benefit plan as defined in SEC Regulation D, a private business development company as defined in SEC Regulation D, an organiza- EFG Hermes Holding, or any of its subsidiaries or officers (other than the authors of this report) may have a financial interest in one or any of the securities that are the tion described in US Internal Revenue Code Section 501(c)(3) and SEC Regulation D, a trust as defined in SEC Regulation D, or an SEC registered investment adviser or subject of this report. Funds managed by EFG Hermes Holding SAE and its subsidiaries (together and separately, “EFG Hermes”) for third parties may own the securities any other manager of a pooled investment vehicle. that are the subject of this report. EFG Hermes may own shares in one or more of the aforementioned funds or in funds managed by third parties. The author(s) of this report may own shares in funds open to the public that invest in the securities mentioned in this report as part of a diversified portfolio over which the author(s) has/have Investment Banking Business no discretion. The Investment Banking division of EFG Hermes may be in the process of soliciting or executing fee-earning mandates for companies that are either the EFG Hermes, or any of its subsidiaries does and seeks to do business with companies mentioned in its research reports. As a result, investors should be aware that the firm subject of this report or are mentioned in this report. Research reports issued by EFG Hermes are prepared and issued in accordance with the requirements of the local or any of its subsidiaries may have a material conflict of interest that could affect the objectivity of this report. exchange conduct of business rules, where the stock is primarily listed. GUIDE TO ANALYSIS INVESTMENT DISCLAIMERS EFG Hermes investment research is based on fundamental analysis of companies and stocks, the sectors that they are exposed to, as well as the country and regional This research report is prepared for general circulation and has been sent to you as a client of one of the entities in the EFG Hermes Group and is intended for general economic environment.In special situations, EFG Hermes may assign a rating for a stock that is different from the one indicated by the 12-month expected return relative information purposes only. It is not intended as an offer or solicitation or advice with respect to the purchase or sale of any security. to the corresponding fair value.

It is not tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this report. This research report must not be con- For the 12-month long-term ratings for any investment covered in our research, the ratings are defined by the following ranges in percentage terms: sidered as advice nor be acted upon by you unless you have considered it in conjunction with additional advice from an EFG Hermes entity with which you have a client agreement. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs. Rating Potential Upside (Downside) % Buy Above 15% Our investment recommendations take into account both risk and expected return. We base our long-term fair value estimate on fundamental analysis of the company’s Neutral (10%) and 15% future prospects, after having taken perceived risk into consideration. 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